Bank of Canada Leaves Policy Rate at 0.5%, Projects Modest Growth and Inflation Dipping by Mid-2017

April 12, 2017

Canada’s overnight interest rate target has been 0.50% since cuts of 25 basis points engineered in January and July of 2015. While there’s no urgency to begin tightening as the Federal Reserve is doing, all consideration of a near-term cut has been removed since January due to stronger-than-anticipated growth early this year. Excess slack in the economy is now projected to be reabsorbed completely during the first half of 2018, somewhat sooner than anticipated three months ago. Inflation is currently at the 2.0% target because of transitory factors but projected to settle down to 1.7% by mid-2017 because of the dissipation of upward pressure on energy, as well as weak food prices, electricity rebates and excess product supply. All this is explained in today’s policy statement and in an updated quarterly Monetary Policy Report. The report assumes global GDP will expand 3.3% this year, 3.4% in 2017, and 3.5% in 2018 and that Canadian real GDP grows 2.6% this year, then 1.9% in 2018 and 1.8% in 2019. Inflation is forecast at 1.9% in 2017, 2.0% in 2018 and 2.1% in 2019.

Canadian officials are critical of U.S. President Trumps proposed policy changes. They coming changes to dampen world growth, Canadian growth and even U.S. growth and assume the changes will be unveiled later than Trump wants.

Another area of concern for central bank officials is Canada’s housing market. The accelerated rise in property prices is considered mostly speculative in nature.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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