The Bank of Canada left rates steady in 2019. Although the Bank sees more rate hikes down the road, it says it isn’t in a rush to get there. Anthony Okolie talks with Derek Burleton, Deputy Chief Economist, TD Bank Group.
So the Bank of Canada left rates unchanged. Derek, what stood out for you today?
Well, nothing that was all that earth shattering, I don't think, a lot of it as expected. I think, though, when you look at the press release, the one-pager that comes out, maybe skewing a little bit towards the challenges the economy is facing. You look at the bigger monetary policy report that came out at the same time, that's where they flush out their forecast, and it was much more balanced.
Still confidence in the economy that it will rebound after a slow start to the year. You know, growth should improve. And so the way I took of it was that they're ready to hit the pause button. We don't expect any rate increases, at least for a few months. But come the second quarter, I think we will start to see the bank get into rate hike mode again.
And did anything happen in the announcement today that would make you change your forecast for 2019?
Not really. In fact, they were expected to come down more to what the private sector was building into their 2019 view-- growth around 1.7. The Bank of Canada in their prior forecast three months ago had 2.1, so there was quite a gap that it opened up. That was before markets-- equity markets-- went another leg down, before the announcement of the oil sector curtailment plan on production to get prices up again.
These obviously have had negative economic impacts on Canada. They've built that in, and now that narrows the gap. But again, the important thing, I think, is the fact that after the first quarter they do see the economy bouncing back above its potential rate, confidence that the consumer will strengthen after a weak start to the year. Particularly oil production will pick up. That's really the main linchpin for growth to strengthen.
And what are the risks to the bank's outlook right now?
Well, the bank did have a couple of pages on risk. There's no shortage of uncertainties and risk, but not all are on the downside. I think, for example, trade policy in the US, US-China negotiations-- they say if they work out a deal, that's going to be good for the markets, good for the global economy, and hence good for Canadian economy. And obviously, they don't, and uncertainty builds. That's a negative.
Oil investment. They actually talk, again, two sides around the investment outlook, that it could show more resilience. They figure they've built in a lot of caution to their investment outlook, and it could pick up. Other risks are the usual-- housing prices. Housing market end of the year on a bit of a weaker than expected footing.
And they're concerned that there may be some further downside there with rates having come up in the past. Maybe that's going to squeeze some of the interest rate-sensitive sectors a bit more than they expect.
And finally, we have a few seconds. Where do you see the loonie going in the next little while?
You know, we're thinking a loonie trading sideways. Interesting-- right after the announcement this morning, the loonie did strengthen. I think it maybe wasn't as dovish as some had expected in the market-- maybe just the view that the economy should bounce back in the second quarter. But we're talking maybe a quarter of a cent, not a big move.
We'd expect the currency to kind of hold relatively flat. I think there's so many crosscurrents right now, and they're going to kind of yank the currency in both directions. So currency around the $0.75 mark at least over the next few months.
Derek, thanks very much for your time.