Bank of Canada Maintains Overnight Interest Rate Target at 1.75%

January 22, 2020

This month’s meeting of Canadian monetary policymakers coincided with the release of an updated quarterly Monetary Policy Report. The released policy statement announcing that the key interest rate is being kept at 1.75% acknowledges a softer-than-anticipated patch of economic growth in late 2019 due to a number of factors including strikes, inventory adjustments, poor weather and consumer caution. Officials now project weaker GDP expansion in the first part of 2020 than assumed three months ago and consequently a wider output gap. The forecast for GDP growth in 2020 was revised down 0.1 percentage point to 1.6%, matching last year’s likely pace. The MPR clarifies that while the output gap in the third quarter likely fell within a range of -0.75% to +0.25%, such by yearend had slipped a half percentage point to a band of -1.25% to -0.25%. Some the the recent growth depressants will prove short-lived, and officials expect both growth and inflation by 2021 to be around 2.0%.

The interest rate target has been at 1.75% since a 25-basis point increase in October 2018, which was the fifth 25-bp move since July 2017.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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