As expected by analysts, Bank of Canada governor Stephen Poloz has once again held the overnight rate steady at 0.5%.
In a December 2 statement, Canada’s central bank said the economy is, for the most part, evolving as forecast in the last Monetary Policy Report, issued in October. The American economy is continuing its steady recovery, the statement said, but exports to the U.S. are slightly lower than anticipated.
The Bank said because Canada’s resource sector is still struggling with low commodity prices, overall business investment has suffered. In spite of cuts to resource-sector jobs, however, Canada’s labour market has been recovering.
Inflation remains in line with October’s MPR.
“Total CPI inflation remains near the bottom of the Bank’s target range, owing to declines in consumer energy prices,” the Bank said. “Core inflation is close to 2% as the effects of the lower dollar and the output gap continue to offset each other.”
On the same day, Janet Yellen confirmed the U.S. Federal Reserve will likely raise its rates by the end of the year. The Bank of Canada, in its statement, said “policy divergence is expected to remain a prominent theme,” however, and Benjamin Reitzes, senior economist for BMO Capital Markets, points out that this may be the most important line in the release.
“This is likely a message to those who think that the Bank could be pressured to tighten as the Fed pushes rates higher,” Reitzes said in a note to investors.
“Governor Poloz is making it clear that even as the Fed hikes, Canadian rates will stay steady.”
The bank has cut its rate twice this year in response to the downturn in resources. In January, it decreased the rate from 1%, where it had been for more than four years, to 0.75%. In July, it downgraded its economic forecast for the remainder of 2015 and reduced the rate to 0.5%.
Overall, today’s release points to the central bank holding the overnight rate at 0.5% for a while.
“Barring a meaningful change in the economic backdrop—a big move in oil, up or down, a slump in exports, surprise weakness in the U.S.—the BoC could be on the sidelines for some time,” Reitzes said.
On the back of the Bank of Canada’s announcement and Yellen’s speech, the Canadian dollar strengthened slightly relative to the American greenback. As of press time, the Canadian dollar was trading at 74.87 cents U.S., up almost more than two-tenths of a cent.
