Canadian Monetary Policy Meeting of April 18th Left Stance Unchanged

April 25, 2018

The April Bank of Canada Governing Council meeting coincided with the publication of a quarterly Monetary Policy Report and newly updated macroeconomic forecasts.  The last policy change in January, a 25-basis point overnight target interest rate hike to 1.25%, occurred when the previous MPR was released. Board members this time chose to keep the policy interest rate at 1.25% and released a statement that expresses confidence that inflation will follow a path consistent with the 2% target.

 Consistent with an economy operating with little slack, core measures of inflation have continued to edge up and are all now close to 2 per cent. The transitory impact of higher gasoline prices and recent minimum wage increases will likely cause inflation in 2018 to be modestly higher than the Bank expected in its January Monetary Policy Report (MPR)returning to the 2 per cent target for the rest of the projection horizon.

Regarding growth, “the economy is projected to operate slightly above its potential over the next three years, with real GDP growth of about 2 per cent in both 2018 and 2019, and 1.8 per cent in 2020. This stronger profile for GDP incorporates new provincial and federal fiscal measures announced since January. It also reflects upward revisions to estimates of potential output growth, which suggest the Canadian economy has made some progress in building capacity.”

Bank of Canada officials are reasonably sanguine about world and Canadian economic prospects, although concern is expressed that “escalating geopolitical and trade conflicts risk undermining the global expansion.” Bottom line, Governing Council members expect “that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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