Bank of Canada Kept 1.0% Overnight Rate Target and Neutral Forward Guidance

March 5, 2014

A statement released after the second of eight scheduled interest rate policy meetings in 2014 said “the current stance of monetary policy is appropriate.”  Upside and downside inflation risks both exist and are roughly balanced.  The statement makes the following assertions.

  • Recent softer U.S. data are attributable to weather distortions and therefore considered temporary.
  • Global growth should accelerate this year and next, led by the United States among advanced economies.
  • Global financial markets have become somewhat more volatile for several reasons including geopolitical uncertainty.
  • Canadian GDP in 4Q13 surpassed the central bank’s forecast, but growth in 1Q14 seems likely to be softer than in 4Q13.
  • Fundamental drivers of Canadian inflation are strengthening.
  • But the level now and for some time going forward of inflation is well below target.

The Canadian dollar is not mentioned in the statement.  The January 22 statement had saide “stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment.”  Today’s statement notes that exports “continue to underperform, and overall business investment has yet to pick up.”

The statement is non-committal about both the direction and timing of the next interest rate move, other than to say such will hinge on evolving information pertinent to inflation risks.  The overnight rate target has been at 1.0% since hikes of 25 basis points each in June, July and September of 2010.  The next policy statement on April 16 will coincide with the release of a quarterly update of the Bank’s report on the economy and inflation.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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