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Bank of Canada Annoucement May 2019

The Bank of Canada will be maintaining its target for the overnight rate at 1 3/4 percent as it waits to see how the slowdown of late 2018/early 2019 plays out. So far, it seems it was a temporary blip.

Recent Canadian economic data are in line with the projections in the Bank's April Monetary Policy Report (MPR)--and it looks like economic activity is picking up in the second quarter. The oil sector is beginning to recover as production increases and prices remain above recent lows. Meanwhile, housing market indicators point to a more stable national market, although the Bank notes some regions remain weak in this regard.

Job growth, consumer spending and exports all improved in the second quarter, and it appears that overall growth in business investment has firmed. That said, inventories rose sharply in the first quarter, which may dampen production growth in coming months.

From a global perspective, things are also looking up--although the recent escalation of trade conflicts is causing some global economic uncertainty. In addition, trade restrictions introduced by China are having direct effects on Canadian exports. In contrast, the removal of steel and aluminum tariffs and increasing prospects for the ratification of CUSMA will have positive implications for Canadian exports and investment.

With CPI inflation and Core inflation both expected to sit around the 2 percent target in the coming months, the Bank has decided that the current policy interest rate remains appropriate, for now. It will, however, be keeping an eye on developments in household spending, oil markets and the global trade environment going forward.