Bank of Canada may consider reducing rates following a 1.2% decline in retail sales in October

on Dec 22, 2019
Updated: Mar 11, 2020
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  • Statistics Canada announces a 1.2% decline in October's retail sales on Friday.
  • The disappointing economic data may push the BoC to consider reducing rates in 2020.
  • Analysts had forecast a 0.5% gain in Canadian retail sales in October.
  • The probability of a rate cut in 2020 doubled to 50% following the Friday's report.
  • 8 out of 11 economic subsectors recorded lower than expected sales in October.
  • Owing to a weakened Canadian dollar, USD/CAD hiked to 1.3181 following the report.

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According
to Statistics Canada, retail sales in Canada dropped by 1.2% in October. In its
report on Friday, the government agency announced that the retail sales missed
the analysts’ expectations for October. The Canadian economy has recently been
hit by a series of worse than expected economic data that according to the
financial experts, may push the Bank of Canada (BoC) to reduce the interest
rates in the upcoming months.

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Analysts
Had Forecast a 0.5% Growth In Canadian Retail Sales In October

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Analysts
had previously estimated a 0.5% gain in Canadian retail sales in October. Statistics
Canada cited poor sales in the automobiles sector to have contributed the most in
October’s decline to 1.2% in retail sales.  

Interest
rates have remained unchanged in Canada as per the BoC’s direction for over a
year. Many of Canada’s international counterparts have reduced rates in 2019,
with the Unites States doing so three times in a row before putting the
monetary policy on halt. In October, the BoC had estimated a 1.3% gain in
domestic growth in the fourth quarter.  

Senior
Canadian economist, Stephen Brown of Capital Economics commented on Friday’s
retail sales report and stated that with the growth in Canadian GDP remaining
under pressure in the fourth quarter, the policymakers will surely begin to
lean more towards rate cuts in the upcoming year.

The
probability of a rate cut in 2020 in an attempt
to boost the Canadian economy
remained at 25% before Friday’s report.
Following the retail sales data that hinted at the rising weakness in the Canadian
economy, however, resulted in doubling the chances of a rate cut in 2020 to 50%
overnight, as per the latest survey.

8
Out Of 11 Economic Subsectors Recorded Lower Than Expected Sales In October

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The
retail sales report also added that 8 out of a total of 11 economic subsectors
recorded lower than expected sales in October. The 8 subsectors, as per the
report, contribute to 81% of total retail trade in Canada. Senior Economist
Royce Mendes of CIBC Capital Markets mirrored the same idea while commenting on
Friday’s report that in consideration of a lack of enthusiasm among the
Canadians toward spending in October, the lawmakers can be expected to hold a
debate on the potential pros and cons of further leniency in the monetary policy.

Other
economic data that disappointed Canada in the past week include wholesale trade
(down by 1.1%), factory sales (down by 0.7%), national
unemployment rate (hiked to 5.9%)
, and new home prices (down by 0.1%).  

Following
the retail sales report, the Canadian dollar lost strength against the greenback
as the USD/CAD pair was seen trading as high as 1.3181.

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