While leaving the monetary policy unchanged at expected, BOC delivered a dovish tone at the accompanying statement. This raised hopes of a rate cut in coming months and sent the loonie lower. The central bank has turned less confident about the near-term economic outlook, forecasting that the slowdown in 4Q19 could continue in early 2020. Governor Stephen Poloz opened the door for rate cuts, while the forward guidance that the current monetary policy is “appropriate” is removed.

The members adopted a more cautious tone towards the economic outlook. As noted in the policy statement, BOC acknowledged that “indicators since the October Monetary Policy Report (MPR) have been mixed”. It is added that “data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October”. Concerning the slowdown in 4Q19, the members noted that some of it was driven by “special factors”. However, it also signaled that “global economic conditions have been affecting Canada’s economy to a greater extent than was predicted”.

BOC revised lower its economic projections. GDP growth is revised lower to an annualized +0.3% q/q for 4Q19, from +1.3% projected previously. Growth for this year is revised lower to +1.6% (down -0.1 percentage point from previous estimate). The economic growth is expected to pick up again to 2% in 2021. While hovering around target, inflation is expected to soften to +1.8% in 2020 (revised down from 1.9% in October),

source_https://www.actionforex.com/