The Globe and Mail reports in its Saturday edition that the Bank of Canada held its overnight rate constant at 1.75 per cent last week. The Globe's guest columnists Steve Ambler and Jeremy Kronick write that markets had priced this in, but nevertheless, there are reasons to be surprised by this decision, and perhaps even consider it a missed opportunity.
Global conditions have already led the United States Federal Reserve to signal a softening of its monetary policy stance. Fed chairman Jerome Powell stated last week that "it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. outlook."
Markets have already priced in a rate cut by the Fed at the end of July, and the Canada-U.S. exchange rate already reflects both this expected cut and the belief that the BOC would hold steady. Any further hike by the bank would have put upward pressure on the loonie, making our exports more expensive. We are now more than 10 years removed from the end of the last recession, meaning we are likely closer to the next one than the last one. As a small player, Canada is unlikely to avoid being caught in the downdraft of a weakening global economy.
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