OTTAWA – With the Bank of Canada widely expected to leave its benchmark interest rate untouched Wednesday, analysts will focus on the tone of an announcement that arrives amid significant uncertainty about U.S. economic proposals.
On a more positive note, the central bank’s latest scheduled rate decision will also come after several recent economic data releases showed the economy had outperformed predictions.
Those improvements are expected to help dampen any chance of an interest rate cut, said Paul Ferley, assistant chief economist for RBC Economics Research.
“In total, I think the tone might be slightly more upbeat in that the recent data, on net, is maybe coming in slightly stronger than expected, both in terms of growth and inflation,” he said.
READ MORE: Bank of Canada holds key interest rate at 0.5%
With the rate expected to stay at 0.5 per cent, Ferley says analysts will sift through Bank of Canada governor Stephen Poloz’s one-page statement in search of possible signals about the central bank’s policy direction as well as for clues about the timing of its next move.
They will also be looking to learn more about the bank’s thinking when it comes to potential U.S. policy changes that could be introduced under President Donald Trump.
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The proposals, which are concerning for corporate Canada and the federal government, include a border adjustment tax and domestic tax cuts.
Trump has also pushed for the renegotiation of the North American Free Trade Agreement, though he has reassured Canadians that the changes to the deal would only involve “tweaking.”
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On Wednesday, Finance Minister Bill Morneau will meet his new U.S. counterpart, Treasury Secretary Steven Mnuchin, for the first time.
Morneau and the Trudeau government have been trying to figure out Trump’s plans and their potential impacts on Canada.
“I can say that I don’t have details on much of what the United States is doing, so I’m looking forward to listening to President Trump (Tuesday) and developing relationships with my colleagues in the United States to better understand their plans,” Morneau told reporters Tuesday in New York, where he gave a speech at Columbia University.
“My meeting with Secretary Mnuchin is very much about developing relationships.”
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At home, the Canadian economy has shown some small improvements in recent months.
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The most recent labour data from Statistics Canada found that the country continued to generate new jobs in January. However, the numbers also indicated that workers saw their wage increases fade and their hours shrink.
Last week, the agency’s latest inflation report showed that Canada’s annual rate beat expectations in January to hit 2.1 per cent, which is slightly stronger than the Bank of Canada’s ideal two per cent target. Still, the surge was largely due to rising gasoline prices.
On Thursday, Statistics Canada will provide more details about the health of the economy when it releases its fourth-quarter reading for real gross domestic product, a measure of economic growth. The GDP figure over the final three months of 2016 is expected to be more robust than had been anticipated.
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