Canada Monetary Policy


Bank of Canada leaves overnight rate unchanged

At its 3 September monetary policy meeting, the Bank of Canada (BoC) left the overnight target rate unchanged at 1.00%, a decision that was broadly expected by the market. Monetary authorities have left the rate unchanged since September 2010. In its accompanying statement, the Central Bank confirmed that the acceleration in inflation was due to, “temporary effects of higher energy prices, exchange rate pass-through, and other sector-specific factors rather than to any change in domestic economic fundamentals.”

In terms of growth, the Bank said that the global economy is performing as expected, with recovery faltering in Europe over the Ukraine conflict. However, the Bank sees the United States on track for a solid recovery, buoyed by business investment. In Canada, the BoC stated that second quarter GDP confirmed the Bank’s projections for the economy. The Bank noted that, “while an increasing number of export sectors appear to be turning the corner toward recovery, this pickup will need to be sustained before it will translate into higher business investment and hiring.” Furthermore, the Bank added that activity in the housing market has been stronger than expected.

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%. Regarding future monetary policy decisions, the Bank noted that it is, “neutral with respect to the timing and direction of the next change to the policy rate,” indicating that the next move could either be a rate cut or a rate hike. The next monetary policy meeting is scheduled for 22 October.

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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