Bank of Canada Retains Existing Very Accommodative Policy Stance

December 2, 2015

In the first half of 2015, Canada experienced back-to-back quarterly economic contractions, constituting a recession, but such was short-lived, as real GDP rose 2.3% at an annualized rate last quarter in spite of a 1.1 percentage point inventory drag.  Twice earlier this year in January and July, the Bank of Canada Board voted to cut its overnight money rate target by 25 basis points.  Those easings reversed two-thirds of the trio of rate hikes implemented in June-September of 2010 and left Canada’s key interest rate at 0.50%.  A small premium to the U.S. federal funds rate will soon end, but that prospect didn’t persuade Canadian monetary officials to change policy at this week’s eighth and final scheduled review in 2015.

Officials released a statement that doesn’t call the C-dollar either over- or under-valued but acknowledges that depreciation and the persistent output gap are having counter-acting effects on inflation.  “Total CPI inflation remains near the bottom of the Bank’s target range, owing to declines in consumer energy prices. Core inflation is close to 2 per cent.”  Regarding growth, the statement observes, “the dynamics of growth have been broadly in line with the Bank’s MPR outlook. The economy continues to undergo a complex and lengthy adjustment to the decline in Canada’s terms of trade. This adjustment is being aided by the ongoing US recovery, a lower Canadian dollar and the Bank’s monetary policy easing this year. The resource sector is still contending with lower prices for commodities. …The labour market has been resilient at the national level, although with significant job losses in resource-producing regions. The Bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016.”

The first scheduled policy meeting of 2016 in January will coincide with a fuller review of the economy.

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



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