No Change Made in Bank of Canada’s 0.75% Overnight Interest Rate Target

March 4, 2015

The target had been cut at the prior Governing Council Meeting on January 21, which coincided with a quarterly review of economic conditions and prospects.  The cut in January was the first rate change since a hike in September 2010 was was characterized as providing “insurance against risk of too low inflation and growth from the sharp drop in oil prices, which for Canada was deemed a clear negative.  Another intent of the January easing had been to “support the sectoral adjustment needed to strengthen investment and growth and bring the Canadian economy back to full capacity and inflation to target within the projection horizon.”

Some analysts thought officials would cut again today, and others thought it would suggest such a move in the near future.  The rate was not changed, and the statement released by officials was less dovish than anticipated, with no hint of strong consideration being given to further easing and including expressed satisfaction about progress toward each of the objectives sought January’s rate cut.  Since then, “financial conditions have eased materially.”  And officials believe that this easing “will mitigate the negative effects of the oil price shock,” which is likely to be felt mostly in the first half of this year.  Global economic trends are evolving as assumed, as did Canadian growth last quarter.  The statement deletes the thought of policy insurance against perceived risks, and instead asserts that “the risks around the inflation profile are now more balanced.”

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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