Slow Growth In Q4 Expected To Keep Bank of Canada From Raising Rates Next Week

Slower than expected economic growth in the fourth quarter of 2017 is expected to keep the Bank of Canada from raising interest rates at its policy setting meeting next week.

Canada’s economy grew only modestly in the fourth quarter of last year, below economists’ expectations and well below the strong pace set in the first half of 2017. Canada’s Gross Domestic Product (GDP) grew by an annualized 1.7% in the final quarter of 2017, short of economists’ forecast for 2% growth. The Canadian dollar touched a 10-week low against the U.S. dollar following last Friday’s GDP report.

The economic cooling in the final months of 2017 was largely due to a smaller accumulation of inventories, said Statistics Canada. The latest GDP data was expected to keep the Bank of Canada in a holding pattern on interest rates at its policy meeting next week, although the consensus view of economists polled by Bloomberg is that the central bank will further raise interest rates and tighten monetary policy later this year.

Indeed, despite the slowdown in the fourth quarter, Canada’s economy grew 3% for the year as a whole, its best performance since 2011. Analysts said Friday that the Canadian economy is now returning to a more sustainable pace after growth above 4% in the first six months of 2017. The Bank of Canada has raised interest rates three times since last July. Markets see a 72% likelihood of an increase in May, while a hike in July is fully priced in.