Bank of Canada: No Changes and No Surprises

June 4, 2009

The Bank of Canada left its overnight rate target at 0.25%, reaffirmed its conditional pledge not to change such before 3Q10, and again avoided adopting quantitative easing.  All of these actions were as expected.  The one novel piece of information in the central bank’s statement is a warning that recent hopeful signs such as modestly better consumer and business confidence and significantly improved commodity prices and financial conditions could all be undone if the “unprecedentedly rapid rise in the Canadian dollar proves persistent.”  Thus, officials stressed that considerable uncertainty associated with the forecast has not really lessened, and concluded that inflation is more likely to be less than more than the bank’s baseline forecast.  Officials expect the already significant output gap to widen further and cautioned that an eventual economic recovery will likely be atypically “muted” in strength.  Policymakers at the Bank of Canada make their next formal announcement on July 21st and will publish an update of the April Monetary Report two days later on July 23rd.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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