OTTAWA, July 16, 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
Total CPI inflation has moved up to around the 2 per cent target in
recent months, sooner than expected. Core inflation has also increased
but remains below 2 per cent. Recent higher inflation is attributable
to the temporary effects of higher energy prices, exchange rate
pass-through and other sector-specific shocks, rather than to any
change in domestic economic fundamentals. Over the next two years,
inflation is projected to fluctuate around 2 per cent as these
temporary effects ease and the downward pressure on inflation from
economic slack and heightened retail competition gradually dissipates.
The global economy is on a lower growth track than was foreseen at the
time of the April Monetary Policy Report. Serial disappointment with economic performance during the past
several years has mainly reflected the impact of private-sector
deleveraging, fiscal consolidation and, especially, the lingering
effect of uncertainty on business investment and trade. Nevertheless,
the Bank continues to project that global growth will gather momentum
as these headwinds abate.
Given the downgrade to the global outlook, economic activity in Canada
is now projected to be a little weaker than previously forecast.
However, the Bank still expects that the lower Canadian dollar and a
projected strengthening in global demand will lead to a pickup in
Canadian exports and business investment and, eventually, a more
sustainable growth track. Meanwhile, household imbalances continue to
evolve constructively and recent data are broadly consistent with a
soft landing in Canada's housing market. Real GDP growth is projected
to average around 2 1/4 per cent during 2014-2016. Consequently, the
economy is expected to reach full capacity around mid-2016, a little
later than anticipated in April.
For the inflation target to be achieved on a sustained basis in 2016,
the economy must reach and remain at full capacity. Closing the output
gap over the time frame described above is reliant on continued
stimulative monetary policy and hinges critically on stronger exports
and business investment. Meanwhile, the risks associated with household
imbalances, while evolving in a constructive way, are still elevated.
Weighing these considerations within the Bank's risk-management
framework, the monetary policy stance remains appropriate and the
target for the overnight rate remains at 1 per cent. The Bank is
neutral with respect to the timing and direction of the next change to
the policy rate, which will depend on how new information influences
the outlook and assessment of risks.
The next scheduled date for announcing the overnight rate target is 3
September 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 22 October 2014.
SOURCE: Bank of Canada
For further information: