Chance of a Poloz Rate Cut Near Zero, These 4 Charts Suggest

  • Economists expect Bank of Canada to hold key rate at 0.5%
  • Decision comes on heels of several upside data surprises

Bank of Canada governor Stephen Poloz will release his next interest rate decision Wednesday at 10 a.m. in Ottawa, with all 30 economists in a Bloomberg survey predicting he’ll maintain the benchmark at 0.5 percent.

These four charts show why Poloz could be done with cuts for the rest of the year.

In its January Monetary Policy Report, the bank estimated gross domestic product would expand just 1 percent in the first quarter and 1.4 percent for 2016. Those forecasts are now outdated amid a string of reports that show the economy is growing more robustly than anticipated a few months ago. Bloomberg’s most recent survey results show a consensus forecast of 2.9 percent for the quarter, surpassing forecasts for U.S. growth, and 1.6 percent for the year. Policy makers will also factor into their 2016 forecasts new government spending that Canada’s finance department estimates will add 0.5 percentage points to growth.

Output in non-energy commodity industries increased 4.3 percent in the last year through January, the most since November 2013, according to Bloomberg calculations on Statistics Canada data. Poloz has spoken at length about this “protracted transition” of the Canadian economy toward non-energy exports, and recent data provide some evidence this is panning out. Non-energy export volumes also grew 8.4 percent in February from a year earlier, adding to signs the sector may indeed lead the country back to full capacity.

Employment prospects in Canada have also started to stabilize, with the economy adding 40,600 jobs in March, and nascent signs of upward momentum emerging. That includes the addition of 18,900 jobs in Alberta, where just a month earlier the collapse in oil prices had pushed the unemployment rate to the highest since 1995.

Erik Hertzberg/Bloomberg

The two 2015 rate cuts from the central bank continue to support Canada’s interest rate sensitive sectors like autos and real estate. Still, consumer credit growth, home prices, and household debt to income levels keep ticking higher. The bank has regularly cited household financial stress and housing prices as a key risk to the stability of the Canadian financial system, and last year’s cuts to the overnight rate have increased the frequency of cautionary language. Skyrocketing Vancouver and Toronto home prices may intensify concern select markets are enjoying too much of a good thing.

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