Canada: Bank of Canada leaves policy rate unchanged again
April 16, 2014
At its 16 April 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 BoC announced that despite a, “gradual strengthening in the fundamental drivers of growth and inflation in Canada,” it expects that, “the risks associated with household imbalances remain elevated.” Therefore, the Bank kept the overnight target rate unchanged and explained that the current monetary policy stance is “appropriate” to deal with these risks. Additionally, the Bank stated that inflation in Canada remains low due to the economic slowdown and increased competition in retail, which are expected to continue until 2016. However, the BoC expects that an increase in consumer energy prices and a weakened Canadian dollar (CAD) will contribute to a temporary rise in consumer prices. That said, the Bank foresees inflation below its 2.0% target throughout 2014 and stated that, “the downside risks to inflation remain important.”
As for economic growth, the Central Bank expects the economy to be driven by an improvement in exports and investment and expand 2.5% in both 2014 and 2015. While the recovery of the U.S. economy and a low CAD are expected to contribute to a rise in exports, the Central Bank identified exporters' low competitiveness as major challenge.
The majority of FocusEconomics Consensus Forecast panelists see the policy rate at 1.0% at the end of 2014, with an average consensus of 1.04%. For 2015, panelists expect the policy rate to rise to 1.62%.
Author: Armando Ciccarelli, Head of Data Solutions