“The Bank of Canada today (October 24, 2018) increased its target for the overnight rate to 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent. The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon, as forecast in the Bank’s July Monetary Policy Report (MPR). The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.”
– (Bank of Canada Press Release, October 24, 2018)
Canada’s central bank has become more optimistic about the outlook for the Canadian economy because of the signing of the new trade deal with the US.
In tandem with what is occurring in the US, the Bank is also engaged in normalizing interest rates in Canada.
The BoC believes that the Canadian economy is operating at close to full capacity and that the future composition of growth will rebalance more in the direction of capital investment, which has been a lagging behind the economy.
The central bank view is that Canada’s economy will expand at about a 2% annual rate in the second half of 2018. The Bank projects 2.1% GDP growth in 2018 and 2019, and 1.9% growth in 2020.
In other words, over the next several years the Bank expects Canada’s economy to grow roughly in line with its estimates of potential economic growth.
It is also important to note that, despite a rather uncertain outlook for investment in the oil and gas sectors (including pipeline activity), the other Canadian industries have been expanding at capacity rates because of solid domestic and foreign demand.
This explains why in the recent past, business investment (largely non-oil, non-pipeline) and exports have been accounting for a growing share of the Canadian economic growth. (Bank of Canada, Monetary Policy Report, October 24, 2018)
