The
Bank of Canada announced this morning that it is holding its target for the
overnight interest rate at 0.5 per cent. In the press release accompanying the
decision, the Bank noted that the profile for growth in Canada over the
near-term is lower than it previously expected though the Bank is still
projecting stronger growth in the second half of 2016. However, the Bank has
pushed out its forecast for the economy to return to full capacity to mid-2018
while inflation is projected to return to its 2 per cent target next year.
There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.
There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.
Copyright BCREA – Reprinted with permission
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