OTTAWA, July 15 /CNW Telbec/ - The Bank of Canada today announced that it
is maintaining its target for the overnight rate at 3 per cent. The operating
band for the overnight rate is unchanged, and the Bank Rate remains at 3 1/4
Three major developments are affecting the Canadian economy: the
protracted weakness in the U.S. economy; ongoing turbulence in global
financial markets; and sharp increases in many commodity prices. The first two
developments are evolving roughly in line with expectations in the April
Monetary Policy Report. However, commodity prices are continuing to outstrip
earlier expectations. This has led to further increases in Canada's terms of
trade and real national income, and has altered the outlook for global and
Although Canadian economic growth in the first quarter was weaker than
expected, final domestic demand continues to expand at a solid pace. The
economy is judged to have moved into slight excess supply in the second
quarter of this year; excess supply is expected to increase over the balance
of the year. High terms of trade, accommodative monetary policy, and a gradual
recovery in the U.S. economy are expected to generate above-potential growth
starting early next year, bringing the economy back to full capacity around
mid-2010. Canadian GDP is projected to grow by 1.0 per cent in 2008, 2.3 per
cent in 2009, and 3.3 per cent in 2010.
Total CPI inflation over the next year is expected to be much higher than
projected at the time of the April Report. Assuming energy prices follow
current futures prices over the projection period, total CPI inflation is
projected to rise temporarily above 4 per cent, peaking in the first quarter
of 2009. As energy prices stabilize and with medium-term inflation
expectations remaining well anchored, total inflation is then projected to
converge to the core rate of inflation at the 2 per cent target in the second
half of 2009. Core inflation is projected to remain well contained and broadly
in line with earlier expectations, averaging close to 1.5 per cent through the
third quarter of this year and then rising to 2 per cent in the second half of
The three major developments affecting the Canadian economy pose
significant upside and downside risks to the Bank's base-case projection.
Weighing the implications of these, the Bank views the risks to its base-case
projection for inflation as balanced.
Against this backdrop, the Bank judges that the current level of the
target for the overnight rate remains appropriate. The Bank will continue to
monitor carefully the evolution of risks, together with economic and financial
developments in the Canadian and global economies, and set monetary policy
consistent with achieving the inflation target over the medium term.
The Bank's detailed projection for the economy and inflation, and its
assessment of risks to the projection, will be published in the Monetary
Policy Report Update on 17 July 2008.
The Bank of Canada's next scheduled date for announcing the overnight
rate target is 3 September 2008.
For further information:
For further information: Jeremy Harrison, (613) 782-8782