Bank of Canada Interest Rate Announcement

The Bank of Canada once again opted to leave its target for the overnight rate unchanged at 1 per cent. In the statement accompanying today's announcement, the Bank noted that though inflation is close to its 2 per cent target, the recent pick-up in inflation was largely due to temporary factors as the Bank anticipated. In spite of stronger global and domestic economic growth last quarter, the Bank still expects excess capacity in the economy to be absorbed over the next 2 years and judges risks to its outlook to be balanced between higher inflation and still elevated household debt. Therefore, the Bank remains neutral with respect to timing and direction of its next change to the policy rate. 

As the Bank noted, economic growth exceeded expectations in the second quarter. However, the economy looks far more pedestrian if averaged over the entire first half of 2014.  Employment growth has been uneven and the Canadian unemployment rate remains stubbornly high. Therefore, the Bank is unlikely to be moved from its current stance after just one strong quarter of economic growth. We expect that the Bank will continue to take a cautious approach to monetary policy until it sees concrete signs that the economy is growing above trend. That means at least one more quarter of solid GDP growth paired with more steady employment gains, as well as similarly strong data in the United States. While the Bank left the door open to lower interest rates given its "neutral" stance, we still anticipate that the next move for interest rates will be upward, though not until 2015. 

Copyright BCREA - reprinted with permission