By Promit Mukherjee and David Ljunggren
OTTAWA, June 5 (Reuters) – Canadian firms and industry associations affected by trade tensions are less worried about a worst-case scenario involving U.S. tariffs but are set to raise prices, the Bank of Canada said on Thursday.
The central bank left rates unchanged for the second time in a row on Wednesday, saying it needed more certainty about the effect of the tariffs.
Deputy Governor Sharon Kozicki said that in a bid to get as much data as possible about how the economy was doing, the bank had also reached out to a group of firms and associations she said were particularly affected by trade tensions.
“Overall, firms believed that their worst-case tariff scenarios were much less likely to materialize than they reported earlier this year,” she said in a speech in Toronto.
“While uncertainty remains high, there was less talk of catastrophic outcomes,” she continued.
The consultations, which took place from mid-April to mid-May, followed an earlier round in January.
Kozicki though said the tariffs had already started impacting firms’ performances and they were finding it hard to formulate their outlooks.
“Most businesses expect activity to weaken in the near-term, which puts jobs at risk. In addition, firms spoke about their costs increasing, which likely means they will need to raise prices at some point,” she said.
The feedback from the consultations was part of the data and analysis the bank considered before holding rates. It said it would consider a rate cut in future if growth weakened and inflation stayed under control.
Money markets are betting close to 60% chance of a hold once again on July 30 when the bank announces its decision and releases its quarterly monetary policy report.
In April, the bank had provided two scenarios for economic growth where the second assumed a global trade war and recession. Governor Tiff Macklem on Wednesday said since the scenarios had been issued, the bank felt the chances of the second scenario taking place had diminished to some extent.
Economists anticipate between two and three 25 basis point cuts this year, which could take the interest rates down to 2% by year end.
Kozicki said that besides hard data sets, the bank would rely on surveys of businesses and consumers as well as consultations with industry groups in deciding the future trajectory of rates.
The bank will be holding around 11 community visits this year and a little fewer than the 100 round tables, bilateral meetings and consultations it arranged last year.
((Reuters Ottawa bureau))
Keywords: CANADA CENBANK/
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