'Next move a cut': What economists say about Bank of Canada's decision to hold rates

financialpost.com:

The Bank of Canada held its benchmark interest rate at five per cent on Sept. 6, with one economist predicting the bank’s next move could be a cut based on deteriorating economic data, though policymakers warned they could hike again.

The Bank of Canada in a statement said slowing economic growth and a cooling jobs market were among reasons it decided to keep its benchmark lending rate steady.

Gross domestic product unexpectedly contracted 0.2 per cent in the second quarter, something the central bank said “is needed to relieve price pressures.”

Nonetheless, the Bank of Canada expects challenges to remain in bringing inflation down to its two per cent target. Those challenges include rising gasoline prices and still elevated wage growth, which the central bank estimated at four to five per cent.

“Recent CPI data indicate that inflationary pressures remain broad-based,” the central bank said in its statement. “With the recent increase in gasoline prices, CPI inflation is expected to be higher in the near term before easing again.”

Inflation accelerated to 3.3 per cent in July after slowing to 2.8 per cent in June. Statistics Canada releases inflation numbers for August on Sept. 19.

Canada’s unemployment rate rose to 5.5 per cent in July. Meantime, jobs vacancies have continued to decline, according to Statistics Canada.

“The softness of recent growth and labour market data made it an easy call for the Bank of Canada to leave rates unchanged,” Andrew Grantham of CIBC Economics, said in a note.

Still, the central bank warned it would raise rates again “if underlying inflation pressures persisted.”

Core inflation hovering around 3.5 per cent explains some of the Bank of Canada’s “hawkish” tone, Stephen Brown of Capital