Canada Monetary Policy

Canada

Canada: Bank of Canada leaves overnight rate unchanged

December 3, 2014

At its 3 December 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 stated that although inflation has risen more than expected, this, “is largely due to the temporary effects of a lower Canadian dollar and some sector-specific factors.”

In terms of economic developments, the Bank commented that U.S. economic growth has strengthened, which is having a positive impact on Canadian exports. However, growth in the rest of the world has been disappointing and in many economies it is reliant on exceptional policy stimulus. Moreover, energy prices continue to decline and global financial conditions have worsened.

In regard to the domestic economy, the Bank stated that it? is recovering. A pick-up in exports has resulted in increased investment and job growth. However, falling commodity prices continue to weigh on economic growth and household imbalances are a risk to stability.

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. Although inflation is relatively high, weak commodity prices present downward pressure on inflation. Therefore, the Bank has left its target for the overnight rate unchanged at 1.00% as, “the balance of risks remains within the zone for which the current stance of monetary policy is appropriate.” The next monetary policy meeting is scheduled for 21 January 2015.

FocusEconomics Consensus Forecast panelists see the policy rate at 1.01% at the end of 2014. For 2015, panelists expect the policy rate to rise to 1.46%.


Author: Angela Bouzanis, Senior Economist

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