Canada: Bank of Canada keeps policy rate unchanged as expected
December 4, 2013
At its 4 November monetary policy meeting, the Bank of Canada (BoC) left the overnight rate target unchanged at 1.00%, a decision that was in line with market expectations. Monetary authorities have left rate unchanged since September 2010. According to the Central Bank, the 2.7% GDP growth registered in Q3 was higher than it had expected, but it was not indicative of a, "rebalancing towards exports and investment." Business investment spending has picked up as well, but by less than expected. The Bank also acknowledged that the housing sector has been improving, although the improvement is mostly a result of favorable financing conditions. The Bank reiterated that it expects the economy to, "gradually return to full productive capacity by the end of 2015." In terms of price developments, the BoC emphasized that inflation has, "moved further below the Bank's 2% target." The Bank explained that excessive supply in the economy and increased competition in the retail sector are limiting inflation. The Bank stated that, even though the downside risks to inflation now appear to be greater than before and the imbalances in the housing market have not changed, there is still an acceptable overall "balance of risks" in the economy. The Bank concluded by reiterating its previous statements that, "the substantial monetary policy stimulus currently in place remains appropriate." However, the Bank's statement seems to have shifted toward greater concerns about lower inflation, which many analysts interpret as a sign that there may be a rate cut in the near future. FocusEconomics Consensus Forecast panelists see the policy rate at 1.01% at the end of 2013. For 2014, panelists expect the policy rate to rise to 1.33%.
Author: Carl Kelly, Economist