With the release of the Bank of Canada’s most recent Business Outlook Survey came insights into the central bank’s policy position – and, indeed, the future of its benchmark rate.
The outlook brought with it good news – but not enough to force the Bank of Canada to raise benchmark for the overnight rate, according to one big bank.
“The Bank of Canada will likely be pleased to see the continued gains in business sentiment, but is unlikely to be stirred to action,” Brian DePratto, senior economist at TD Bank, said in his analysis. “This is because any improvement in investment will be starting from a much lower level – Canadian business investment has shrunk for nearly two years straight, and it be a long time before previous levels are reached.
“As a result, Governor Poloz will not follow the Federal Reserve, and is likely to instead keep the policy interest rate at its current level of 0.50% for some time to come, helping the investment recovery process.”
The Business Outlook Survey
reported improvement in business sentiment in the fourth quarter of 2016, with firms expressing optimism around domestic sales and improving conditions in the oil industry.
Still, uncertainty as a result of the recent US looms.
“Uncertainty about the outcome of the US election, which affected the autumn survey, has given way to uncertainty about the measures that will be put in place by the incoming US administration and their impact on Canadian businesses,” the Bank of Canada said in its survey. “Firms’ views (which in some cases reflect the perspectives of their US customers) are divided: some are optimistic about the prospect of increased infrastructure and military spending as well as changes in energy policies, while others are more pessimistic, often because of the risk of increased protectionism.”