Bank of Canada kept its overnight interest rate on hold at 1.75 percent today, as was widely anticipated. The accompanying statement was slightly less dovish than expected, as the central bank seems to have maintained a tilt towards data dependency.
The central bank’s latest assessment of economic conditions was comparatively balanced. On the positive side, the noted stronger than expected second quarter GDP growth and housing activity, as well as rising wages. Balancing this out is the weak business investment story, both here and abroad, increased worries regarding global growth, weak consumption figures, and a view that economic activity would decelerate in the second half of this year.
Meanwhile, the central bank expects headline inflation to be artificially boosted by temporary factors, and noted that all core inflation measures would stay around the two percent target.
“Markets, and ourselves, were looking for more of a dovish signal today in a nod to escalating trade tensions and weakening global picture. As a result, the loonie strengthened in a knee-jerk reaction and the implied odds of an October cut eased slightly in the wake of this morning's decision. But, even if the Bank of Canada has not telegraphed an October rate, we believe the backdrop makes it the most likely outcome”, stated TD Economics.


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