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April 16, 2014BANK OF CANADA MONETARY POLICY The Bank of Canada announced today that it is maintaining its target for the overnight rate at 1 per cent. With the release of the April Monetary Policy Report, the Bank disclosed its latest outlook for economic conditions and inflation.
Although economic conditions are improving, the Bank notes that there remain persistent problems among advanced economies, particularly in Europe, where inflation is too low and the risks from geopolitical instability have risen.
Although US growth slowed in the first quarter, recovery is expected to pick up through the rest of the year. With household deleveraging, fiscal consolidation and overall uncertainty largely in the past, the Bank projects US economic growth to be 3 per cent over the next three years.
Like the US, Canadian economic growth is expected to be weak at 1.5 per cent in the first quarter of 2014, before returning to a stable pace of growth between 2.3 and 2.6 per cent through the end of 2015. There remains significant excess capacity in the Canadian economy, keeping inflation pressures muted. Depreciation of the Canadian dollar is expected to help broaden sources of growth (particularly for energy exports) while housing investments slow moderately. Excess capacity is not expected to be fully absorbed until 2016.
As excess capacity is absorbed through 2016, core inflation is expected to rise gradually back to the 2 per cent target. However, over the coming year, commodity prices are expected to elevate broader inflation (which is not the focus of monetary policy) above core inflation.
Bank of Canada:
Rate Announcement,
Monetary Policy Report