{"id":62336,"date":"2014-10-22T11:15:03","date_gmt":"2014-10-22T15:15:03","guid":{"rendered":"http:\/\/countingpips.com\/?p=62336"},"modified":"2014-10-22T11:56:12","modified_gmt":"2014-10-22T15:56:12","slug":"canada-maintains-rate-on-balanced-risks-to-inflation","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/canada-maintains-rate-on-balanced-risks-to-inflation\/","title":{"rendered":"Canada maintains rate on balanced risks to inflation"},"content":{"rendered":"
October 22, 2014<\/div>
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By CentralBankNews.info<\/u><\/a>
\n    Canada’s central bank maintained its benchmark target for the overnight rate at 1.0 percent, as widely expected, saying the “risks to its inflation projection are roughly balanced” while the risks to financial stability associated with household debt were edging higher.<\/span>
    The Bank of Canada (BOC), which has maintained its policy rate since September 2010, omitted giving financial markets and investors specific guidance about its expected future policy, a move that was expected following a speech earlier this month in which Governor Stephen Poloz said forward guidance was best reserved for times of crises.<\/span>
    At its last policy meeting in September, the BOC said it was neutral with respect to the next change in its policy rate, with the timing and direction depending on how new information influences its outlook. Economists expect the BOC to start raising its rates around the middle of next year.<\/span>
    In today’s statement, the BOC said total consumer price inflation was evolving broadly as expected, with underlying inflationary pressures muted but as the economy reaches full capacity in the second half of 2016, both core and total consumer price inflation are projected to be about 2 percent on a sustained basis.<\/span>
    In its latest monetary policy report, the BOC raised its forecast for inflation marginally from July. Core inflation is forecast to average 2.1 percent in the fourth quarter of this year, up from July’s projection of 1.8 percent while total CPI inflation rises to 2.2 percent, the same as forecast in July.<\/span>
<\/a>
    In the fourth quarter of 2015, core inflation is seen averaging 1.8 percent, the same as in July, rising to 2.0 percent in the fourth quarter of 2016, unchanged from July. Total CPI inflation is forecast at 1.8 percent in the fourth quarter of 2015, down from July’s 1.9 percent forecast, rising to 2.0 percent in the fourth quarter of 2016, the same as seen in July.<\/span>
    In September Canada’s core inflation rate was steady at 2.1 percent while headline inflation eased to 2.0 percent from 2.1 percent in August.<\/span>
    Although the BOC said the outlook remains for stronger momentum in the global economy in 2015 and 2016,  it noted weakness since July and “persistent headwinds continue to buffet most economies and growth remains reliance on exceptional policy stimulus.”<\/span>
    But the BOC was relatively optimistic about the economic outlook, saying “confidence in the sustainability of domestic and global demand should improve and business investment should pick up. Together with a moderation in the growth of household spending, this is expected to gradually return Canada\u2019s economy to a more balanced growth path.”<\/span>
    It also noted that the U.S. economy is gaining traction, particularly in sectors that are beneficial to Canada and the country’s exports have begun to respond.<\/span>
    Canada’s economy is forecast to average close to 2.5 percent over the next year before slowing gradually to 2 percent by the end of 2016, roughly what the BOC considers to be the growth rate of potential output.<\/span>
    In its latest forecast, annual growth is forecast at 2.2 percent in the fourth quarter of this year, up from July’s forecast of 2.1 percent, and then pick up speed to 2.4 percent in the final quarter of 2015, the same as seen in July. In the fourth quarter of 2016 Gross Domestic Product growth is forecast at 2.2 percent, the same as forecast in July.<\/span>
    In the second quarter of this year, Canada’s GDP expanded by 0.8 percent from the first quarter for annual growth of 2.45 percent, up from 2.14 percent in the first quarter.<\/span><\/p>\n

    The BOC issued the following statement:<\/p>\n

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“<\/b><\/span><\/span>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 per cent. <\/span>
Inflation in Canada is close to the 2 per cent target. Core inflation rose more rapidly than was expected in the Bank\u2019s July <\/span>Monetary Policy Report <\/span>(MPR), mainly reflecting unexpected sector- specific factors. Total CPI inflation is evolving broadly as expected, as the pickup in core inflation was largely offset by lower energy prices. Underlying inflationary pressures are muted, given the persistent slack in the economy and the continued effects of competition in the retail sector. <\/span>
Although the outlook remains for stronger momentum in the global economy in 2015 and 2016, the profile is weaker than in July and growth prospects are diverging across regions. Persistent headwinds continue to buffet most economies and growth remains reliant on exceptional policy stimulus. Against a background of ongoing geopolitical uncertainties and lower confidence, energy prices have declined and there has been a significant correction in global financial markets, resulting in lower government bond yields. Despite weakness elsewhere, the U.S. economy is gaining traction, particularly in sectors that are beneficial to Canada\u2019s export prospects. The U.S. dollar has strengthened against other major currencies, including the Canadian dollar. <\/span>
In this context, Canada\u2019s exports have begun to respond. However, business investment remains weak. Meanwhile, the housing market and consumer spending are showing renewed vigour and auto sales have reached record highs, all fuelled by very low borrowing rates. The lower terms of trade will have a tempering effect on income. <\/span>
Canada\u2019s real GDP growth is projected to average close to 2 1\/2 per cent over the next year before slowing gradually to 2 per cent by the end of 2016, roughly the estimated growth rate of potential output. As global headwinds recede, confidence in the sustainability of domestic and global demand should improve and business investment should pick up. Together with a moderation in the growth of household spending, this is expected to gradually return Canada\u2019s economy to a more balanced growth path. As the economy reaches its full capacity in the second half of 2016, both core and total CPI inflation are projected to be about 2 per cent on a sustained basis. <\/span> <\/div>\n<\/div>\n<\/div>\n

Weighing all of these factors, the Bank judges that the risks to its inflation projection are roughly balanced. Meanwhile, the financial stability risks associated with household imbalances are edging higher. Overall, the balance of risks falls within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1 per cent.”<\/span><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By CentralBankNews.info     Canada’s central bank maintained its benchmark target for the overnight rate at 1.0 percent, as widely expected, saying the “risks to its inflation projection are roughly balanced” while the risks to financial stability associated with household debt were edging higher.    The Bank of Canada (BOC), which has maintained its policy […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-62336","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62336","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=62336"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62336\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=62336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=62336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=62336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}

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