Canada’s central bank announced July 16 it is maintaining its overnight rate target at 1% – the same level it has been since September 2010.
The Bank of Canada said global economic growth has been below the levels expected at the time of its April Monetary Policy Report.
“Serial disappointment with economic performance during the past several years has mainly reflected the impact of private-sector deleveraging, fiscal consolidation and, especially, the lingering effect of uncertainty on business investment and trade,” the bank said in a release.
“Nevertheless, the bank continues to project that global growth will gather momentum as these headwinds abate.”
Due to this lowered global outlook, economic activity in Canada is forecast to be weaker than previously expected. A weakening Canadian dollar and anticipated increases in global demand, however, are expected to lead to increased exports and higher growth rate.
Real GDP growth in Canada is forecast to average around 2 ¼ % in 2014-16, with the economy hitting full capacity in mid-2016. This is slightly later than was projected in April.
Total CPI inflation has moved up to around to the 2% rate target sooner than expected. Core inflation is also up, but remains below 2%. The increase in inflation was not due to any changes in the domestic economy, the bank said, but rather to higher energy prices – which is expected to be temporary – and exchange rate pass-through.
“Over the next two years, inflation is projected to fluctuate around 2% as these temporary effects ease and the downward pressure on inflation from economic slack and heightened retail competition gradually dissipates,” the bank said.
Household imbalances are staying on track with a constructive evolution, and a soft landing is still expected in the Canadian housing market.
The bank said it is “neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks.”
On the announcement of the rate and the downgraded Canadian economic outlook, the Canadian dollar dipped slightly relative to the U.S. dollar, from $0.930 just prior to the announcement to $0.929 at 10:05 a.m. EST.
The next overnight rate target announcement is scheduled for September 3.
