Bank of Canada Affirms Existing Policy Stance

May 29, 2013

The fourth of eight scheduled interest rate policy meetings in 2013 ended with the expected decision to keep a 1.0% overnight rate target and the release of a statement that affirms the price and growth forecasts published in the April Monetary Policy Report and the policy implications of that outlook

With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target.

The overnight rate target has been 1.0% since September 2010 when the third of three consecutive 25-basis point hikes was implemented.  In January, officials backed away from their prior forecast about the likely timing of the next rate increase, declaring that “the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.”  At that time, a change in the predicted restoration time of full capacity was revised to the second half of 2014 from prior forecasts of mid-2013 made in July 2013 and end-2013 made in October.  The April MPC included further back-pedaling to mid-2015.  Such a view appears to imply that no rate change will occur during the coming twelve months.  Unlike the Fed, the Bank of Canada is not easing in a quantitative way.  So its next policy normalizing move will involve the rate target. 

Today’s released statement again referred to the “persistent strength of the Canadian factor” as an ongoing drag on growth.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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