Bank of Canada to Keep Rates on Hold on Wednesday

• The Bank of Canada (BoC) is widely expected to keep its policy interest rate ​on hold at 2.25% on Wednesday, but economists and money markets are divided over where Canada's monetary policy cycle ‌is headed for the rest of the year due to economic uncertainty.
• From December, money markets had started betting on odds of a rate hike late this year after a long pause for most of the year. But some economists differ, given the uncertainty around the upcoming renegotiations of the United States-Mexico-Canada (USMCA) free trade pact. The central bank had indicated in October, after cutting rates by 25 basis points, that the benchmark rate was about the right ‌level as inflation continued to be within its target range.
• It had also admitted that it did not have the tools to tackle the structural impacts to the economy unleashed by the U.S. tariffs and the related uncertainty. The BoC had reduced rates by 100 basis points last year, bringing them down to the lower ⁠level of its neutral range, a so-called policy interest rate band where the economy is neither being stimulated nor restricted by rates. However, some ‍economists say that for the rates to be actually stimulative and support the economy, they have to come down even further outside of the neutral range.
• A recent survey of businesses and consumers by the BoC showed that business sentiment of Canadian companies remained subdued amid trade tensions, and consumers were worried about their jobs and ⁠debt payments.
• The BoC will announce its monetary policy decision on January 29. It will also release the quarterly Monetary Policy Report, where it will resume its previous practice of sharing single-point forecasts for the economy and inflation. The MPR is ​expected to have an updated outlook on the impact of the federal budget on the Canadian economy

(Source: Reuters)