5 September 2018

Nevertheless, the BoC said it’s closely watching the NAFTA renegotiation and other trade policy developments, which may affect the national economy negatively. It includes the potential consequences for inflation.

As you know, last week, U.S. President Donald Trump announced a bilateral trade agreement with Mexico, which could replace the three-country NAFTA. He pressured Canada to join the U.S.-Mexico deal, but Ottawa and Washington haven’t reached the compromise so far.

According to Frances Donald, senior economist for Manulife Asset Management, the Bank’s direct mention of NAFTA means the issue has become even more important.

In her opinion, however, it also gives the central bank a possibility to keep the rate unchanged next month in case the trade talks and the outlooks for the economy and inflation don’t improve.

Benjamin Reitzes of BMO Capital Markets also believes the Bank’s statement proves that the NAFTA talks are the main issue for markets and the central bank right now.

“it’s a big risk, but most people expect the deal to be signed”, – he said. “Even if NAFTA issue is solved and the data of the next seven weeks will be encouraging, an October rate increase still seems quite a reasonable forecast”.

There were four rate hikes since the middle of 2017, and the recent one was in July. The next rate meeting is on October 24.