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May 25, 2016BANK OF CANADA MONETARY POLICY The Bank of Canada maintained its target for the overnight rate at 0.5 percent with the Bank Rate continuing at 0.75 per cent and the deposit rate at 0.25 per cent.
The global economy is performing largely as anticipated by the Bank in its April Monetary Policy Report (MPR). The US economy showed some weakness in Q1 but recent indicators point to solid growth overall in 2016. Financial conditions remain accommodative, but ongoing geopolitical factors are contributing to fragile market sentiment. Oil prices have moved higher due to short-term supply disruptions.
The Canadian economy continues to make structural adjustments as a result of the oil price shock. Growth in Q1 was in line with expectations but business investment and intentions remain disappointing. The second quarter will be weaker than predicted after the Alberta wildfires. The Bank of Canada estimates that the fire-related destruction and production disruptions will reduce real GDP by 1.25 percentage points in Q2. The economy will rebound in Q3. The Canadian housing market continues to show regional divergences and with ongoing adjustment underway in the economy, the household vulnerability risk has moved higher.
Inflation has been in line with Bank of Canada's expectation, total CPI has risen due to movements in gasoline prices but remains below 2 per cent target. Core inflation remains close to 2 per cent.
The next Monetary Policy Report with an updated outlook for the economy and inflation incorporating the federal budget's fiscal measures will be released July 13, 2016.
Bank of Canada