Canadian Overnight Interest Rate Target Left at 1.0%

December 6, 2017

A statement released after the final scheduled Bank of Canada Governing Council meeting of 2017 observes that growth has evolved since the prior meeting along expected lines but also concedes that inflation has been a bit greater than expected and projects firmer core inflation over time. Slack is getting absorbed, but the growth of potential growth also now is perceived to be higher than imagined earlier. Consequently, the output gap is following a path more or less consistent with the previous assumption, and the 1.0% interest rate target is thus still appropriate. The target will need to go higher, but normalization can proceed in a cautious manner. “While higher interest rates will likely be required over time, Governing Council willcontinue to be cautious, guided by incoming data in assessing the economy‚Äôs sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.” Two hikes of 25 basis points were earlier implemented in July and September of this year, reversing a pair of cuts in January and July of 2015.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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