Canada: Bank of Canada decides to leave policy rate unchanged again
June 5, 2014
At its 4 June monetary policy meeting, the Bank of Canada (BoC) left the overnight target rate unchanged at 1.00%, a decision that was in line with market expectations. Monetary authorities have left the rate unchanged since September 2010.
The Central Bank acknowledged that inflation reached the 2.0% target rate sooner than expected and explained that this was, “largely due to the temporary effects of higher energy prices and exchange rate pass-through.” Nevertheless, the Bank added that core inflation remained subdued despite recent increases.
In terms of growth, the Bank noted that Canadian economic growth in Q1 was only moderate, but emphasized that temporary factors, such as severe weather and supply constraints, had hampered growth. Furthermore, it pointed out that growth in the global economy was below the Bank’s expectations and added that, “recent developments give slightly greater weight to downside risks.” However, the Central Bank emphasized that the lower dollar and the expected rise in foreign demand will contribute to growth of Canadian exports and that improving corporate profits will lead to an increase in future business investment. Furthermore, the Bank stated that there are, “signs of a soft landing in the housing market and a constructive evolution of household imbalances.” The Bank concluded by explaining that, “[w]eighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before.”