Canada: Bank of Canada leaves rate unchanged in May
May 27, 2015
At its 27 May monetary policy meeting, the Bank of Canada (BoC) left the overnight rate unchanged at 0.75%. The decision was in line with market expectations. The Bank noted that inflation continues to progress along the path outlined in its April Monetary Policy Report.
The BoC commented that, although weak economic growth in Q1 the United States was concerning, it expects a return to more robust growth in the second quarter. The United States is Canada’s largest trading partner and the Bank hopes that a return to solid growth in the U.S. would, “help advance the rotation of demand in Canada toward more exports and business investment.”
Regarding price developments, the BoC acknowledged that as a result of the transitory effects of the energy price shock, headline CPI inflation has fallen below the 1.0%–3.0% inflation control range. The Bank stated that it sees an underlying inflation trend of 1.6%–1.8% stemming from a persistent output gap putting downward pressure on prices. However, core inflation continues to grow at rates above 2.0% as a result of a recent depreciation of the Canadian dollar. The next policy meeting is scheduled for 15 July.
Author: Robert Hill, Economist