Bank of Canada Preview: No Change anticipated

March 7, 2012

The Bank of Canada overnight money target has been maintained at 1.0% since three consecutive increases of 25 basis points administered in June, July and September of 2010.  No change is likely tomorrow either, which the Board reveals its decision after its second of eight scheduled meetings in 2012.  The announcement is due at 14:00 GMT on Thursday.

Canadian GDP expanded just 1.8% annualized last quarter, down from 4.2% in 3Q11, and monetary officials foresee growth of just 2.0% this year and 2.8% in 2013.  In combination with excess resource slack of some 0.75% at end-2011, they do not expect full employment conditions until late summer of next year.  Likewise, inflation is projected to dip under the 2.0% target this year and not to rise back to that level until about the same time that economic slack is reabsorbed some six quarters from now.  That gives policymakers ample lead time, so they do not need to raise the policy interest rate again just yet.

Continuing global risks provide additional incentive not to rock the monetary policy boat at this time.  Meanwhile, fiscal policy is in comparatively better shape than in most other industrialized economies.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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