The Bank of Canada announced that it is
maintaining its overnight rate at 0.5 per cent. In the press release
accompanying the decision, the Bank noted that inflation is evolving as
expected with total CPI continuing to test the bottom of the Bank's 1-3 per
cent target range due to low energy prices. However, the Bank expects that
inflation will rise over the next year, reaching its 2 per cent target by
mid-2017. On the economy, the Bank sees
economic growth firming after a slowdown in the fourth quarter of last year.
The Bank projects that the Canadian economy will grow a modest 1.5 per cent
this year before strengthening to 2.5 per cent in 2017.
In not moving on interest rates this morning, the Bank is
recognizing that there is little that monetary policy can do to offset a
significant supply-side shock such as the dramatic decline in oil prices.
Indeed, given Canada's floating exchange rate, the loonie has already adjusted
to help partially absorb the negative impact of falling commodity prices on
exports. Keeping in mind that the
Canadian economy is still projected to grow at a rate very close to its
somewhat diminished potential for 2016 and that inflation will be spurred by a
dramatically lower Canadian dollar, we anticipate that the Bank will reassess
the need for monetary stimulus once the worst of the oil-shock had passed. That
means, barring a significant deterioration in the economy, the Bank will more
than likely remain sidelined for 2016.
Copyright BCREA – Reprinted with permission
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