Canada Monetary Policy


Bank of Canada leaves overnight rate unchanged

At its 22 October monetary policy meeting, the Bank of Canada (BoC) left the overnight target rate unchanged at 1.00%, a decision that was widely expected by the market. Monetary authorities have left the rate unchanged since September 2010. In its accompanying statement, the Central Bank confirmed that inflation is close to the Bank’s 2.0% target and that, “inflationary pressures are muted, given the persistent slack in the economy and the continued effects of competition in the retail sector.”

In terms of economic developments, the Bank stated that global economic growth is diverging across regions and that in many economies it is reliant on exceptional policy stimulus. Moreover, declining energy prices, reduced investor confidence and a correction in global financial markets has resulted in lower government bond yields. However, the Bank sees the United States on track for recovery, particularly in sectors that are important for the Canadian export market. The Bank noted that, “the U.S. dollar has strengthened against other major currencies, including the Canadian dollar… [and] exports have begun to respond.”

The BoC stated that low borrowing rates have stimulated consumer spending in Canada, but that reduced terms of trade will have a moderating effect on income in the future. Moreover, the BoC foresees business investment picking up as domestic and global demand improve. The Bank projects that the economy will reach full capacity in the second half of 2016.

In conclusion, the Bank emphasized that the current monetary policy is appropriate given the balance of risks concerning inflation and household imbalances in the economy. Therefore, the Bank has left its target for the overnight rate unchanged at 1.00%. The next monetary policy meeting is scheduled for 3 December.

FocusEconomics Consensus Forecast panelists see the policy rate at 1.00% at the end of 2014. For 2015, panelists expect the policy rate to rise to 1.52%.

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Canada Monetary Policy Chart

Canada Monetary Policy October 2014

Note: Target for the Overnight Rate in %.
Source: Bank of Canada (BoC).

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