Canada Monetary Policy

Canada

Canada: Bank of Canada maintains stimulative rates

July 16, 2014

At its 16 July 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.

In its accompanying statement, the Central Bank noted that it currently is confronted with moderating growth prospects for the domestic and global economy and an acceleration in inflation. However, while the Central Bank acknowledged that inflation reached the 2.0% target rate sooner than expected, it emphasized that the recent surge in inflation was due to temporary factors and not to any fundamental changes in the economy. In terms of growth, the Bank said that global economic growth was lower than expected, which is why it now forecasts slightly weaker growth for the Canadian economy. In addition, in a press conference on the release of July’s Monetary Policy report, the Bank noted that, “[o]ur serial disappointment with global economic performance for the past several years of course means that we remain preoccupied with downside risks to economic activity and the fundamental drivers of inflation.” Nevertheless, the Bank still expects that the lower Canadian dollar and an expected rise in foreign demand will contribute to the growth of Canadian exports and business investment, which eventually will contribute to a more, “sustainable growth track.” Furthermore, the Bank continues to see a constructive development in household imbalances and a “soft landing” in the housing market.

Regarding future monetary policy decisions, the Bank noted that it is, “neutral with respect to the timing and direction of the next change to the policy rate,” indicating that the next move could either be a rate cut or a rate hike. The next monetary policy meeting is scheduled for 3 September.

FocusEconomics Consensus Forecast panelists see the policy rate at 1.00% at the end of 2014. For 2015, panelists expect the policy rate to rise to 1.53%.


Author: Teresa Kersting, Economist

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Canada Monetary Policy Chart


Canada Monetary Policy July 2014

Note: Target for the Overnight Rate in %.
Source: Bank of Canada (BoC).


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