OTTAWA, Jan. 22, 2014 /CNW/ - The Bank of Canada today announced that it
is maintaining its target for the overnight rate at 1 per cent. The
Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4
Inflation in Canada has moved further below the 2 per cent target, owing
largely to significant excess supply in the economy and heightened
competition in the retail sector. The path for inflation is now
expected to be lower than previously anticipated for most of the
projection period. The Bank expects inflation to return to the 2 per
cent target in about two years, as the effects of retail competition
dissipate and excess capacity is absorbed.
Global growth is expected to strengthen over the next two years, rising
from 2.9 per cent in 2013 to 3.4 per cent in 2014 and 3.7 per cent in
2015. The United States will lead this acceleration, aided by
diminishing fiscal drag, accommodative monetary policy and stronger
household balance sheets. The improving U.S. outlook is affecting
global bond, equity, and currency markets. Growth in other regions is
evolving largely as projected in the Bank's October Monetary Policy Report (MPR). Global trade growth plunged after 2011, but is poised to recover
as global demand strengthens.
In Canada, growth improved in the second half of 2013. However, there
have been few signs of the anticipated rebalancing towards exports and
business investment. Stronger U.S. demand, as well as the recent
depreciation of the Canadian dollar, should help to boost exports and,
in turn, business confidence and investment. Meanwhile, recent data
have been consistent with the Bank's expectation of a soft landing in
the housing market and a stabilization of household indebtedness
relative to income.
Real GDP growth is projected to pick up from 1.8 per cent in 2013 to 2.5
per cent in both 2014 and 2015. This implies that the economy will
return gradually to capacity over the next two years.
Although the fundamental drivers of growth and future inflation appear
to be strengthening, inflation is expected to remain well below target
for some time, and therefore the downside risks to inflation have grown
in importance. At the same time, risks associated with elevated
household imbalances have not materially changed. Weighing these
considerations, the Bank judges that the balance of risks remains
within the zone articulated in October, and therefore has decided to
maintain the target for the overnight rate at 1 per cent. The timing
and direction of the next change to the policy rate will depend on how
new information influences this balance of risks.
The next scheduled date for announcing the overnight rate target is 5
March 2014. The next full update of the Bank's outlook for the economy
and inflation, including risks to the projection, will be published in
the MPR on 16 April 2014.
SOURCE: Bank of Canada
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