Bank of Canada hearing less talk of 'catastrophic outcomes' from businesses
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The Bank of Canada's decision to hold its interest rate at 2.75 per cent on Wednesday was based in part on improved business sentiment in its latest surveys and special consultations with trade-impacted companies.
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'Overall, firms believed that their worst-case tariff scenarios were much less likely to materialize than they reported earlier this year,' said Bank of Canada deputy governor Sharon Kozicki, during a speech in front of the C.D. Howe Institute on Thursday. 'While uncertainty remains high, there was less talk of catastrophic outcomes.'
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Kozicki added that businesses were starting to see trade impacts on their performance and were anticipating raising their prices in response to increasing costs.
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Each quarter, the central bank releases the business outlook, consumer expectations and business leaders' pulse surveys. More recently, the governor and senior officials have met regularly with leaders from different sectors who are impacted by the trade conflict.
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'Traditional data tend to look backward — they measure what has already happened,' said Kozicki in her speech. 'When we expand the kinds of information we consider in our decisions, we gain a more complete view of how raising or lowering the policy rate affects consumers and businesses across the country.'
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Kozicki said while traditional forms of data such as Statistics Canada's labour market, inflation and housing reports remain 'critical' for understanding recent economic conditions, they tend be in retrospect.
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In recent months, trade uncertainty has prompted the central bank to present scenarios as opposed to a firm forecast for the Canadian economy. Bank of Canada senior deputy governor Carolyn Rogers said the bank is increasingly turning to what it refers to as 'soft data' to determine what is happening in the economy.
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Ahead of its March 12 rate announcement, in the midst of a 'truly chaotic' environment, the governing council relied heavily on the results of the quarterly survey and the consultations to make its policy decision. Ultimately, the central bank decided to cut its benchmark rate by 25 basis points to 2.75 per cent.
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