The Bank of Canada announced this morning that it
is maintaining its target for the overnight rate at 1 per cent. The Bank's
target rate has now remain unchanged for 29 consecutive meetings. In its
accompanying statement, the Bank noted that inflation in Canada remains low and
is expected to remain below the Bank's 2 per cent inflation target this year
due to slack in the economy and heightened retail competition. The Bank left is
forecast for Canadian economic growth unchanged at 2.5 per cent this year and
next, citing a strengthening global economy and ramped up business investment.
The Bank also noted that recent developments are in line with the its
expectations of a soft landing in the housing market, though elevated household
debt remains a risk should economic conditions deteriorate.
While some expected a slightly more dovish note from the Bank given
continued muted inflation and a slight rise in the dollar, the Bank remains
decidedly neutral. An expected second half rebound in growth and firming inflation
means that the next move for interest rates is likely higher, but the timing of
that move remains uncertain. Our view remains that the overnight rate will stay
at its current level until at least early 2015.
Copyright BCREA – reprinted with permission
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