By CentralBankNews.info
The Bank of Canada (BOC) maintained its policy rate at 1.0 percent, as widely expected, but cautioned that inflation “is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance” despite an apparent strengthening of the fundamental drivers of economic growth and future inflation.
The BOC, which has maintained its target for the overnight rate at 1.0 percent since September 2010, said inflation was now expected to be lower than previously expected and first return to the bank’s target in about two years as the effect of heightened competition in the retail sector and excess capacity in the economy is absorbed.
The central bank, which dropped a slightly tightening bias in November, was neutral in its guidance, saying the “timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.”
Among the risks identified by the BOC is high household debt, which the BOC said had not materially changed, though it added that recent data confirmed that the housing market is undergoing a soft landing and the ratio of household debt to income is stabilizing.
In its latest policy report, the BOC trimmed its forecast for inflation this year compared with its October projection but maintained the forecast that headline inflation would hit the bank’s 2.0 percent target by the fourth quarter of 2015.
The forecast of economic growth this year was raised while the forecast for 2015 was lowered.
“Real GDP growth is projected to pick up from 1.8 percent in 2013 to 2.5 percent in both 2014 and 2015. This implies that the economy will return gradually to capacity over the next two years,” the BOC said.
