Canada: Bank of Canada leaves policy rate unchanged due to renewed concerns over low inflation
January 22, 2014
At its 22 January 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 rate unchanged since September 2010.
According to the Central Bank, even though the drivers of economic growth and future inflation appear to be strengthening, "inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance." The Bank explained that excessive supply in the economy and high competition in the retail sector continue to limit inflation. Moreover, the path for expected inflation is lower than had been forecast previously and a return to the 2.0% target is not projected to occur for another two years.
In terms of growth, the Bank noted that there were improvements in the second half of 2013, but that there has been insufficient rebalancing toward exports and business investment. The Bank added that risks associated with high household imbalances have not fully subsided either. The Bank's decision to maintain its target rate was based on the above considerations, particularly those regarding inflation. Any changes to the policy rate in the future will depend upon new developments in the economy.
FocusEconomics Consensus Forecast panelists see the policy rate at 1.09% at the end of 2014. For 2015, panelists expect the policy rate to rise to 1.85%.
Author: Carl Kelly, Economist