Bank of Canada Keeps Monetary Policy Unchanged


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.

Excerpt from Bank of Canada statement.

The global economic outlook is slightly weaker than the Bank had projected in October. At the same time, global tail risks have diminished. The economic expansion in the United States is continuing at a gradual pace, restrained by ongoing public and private deleveraging, global weakness and uncertainty related to fiscal negotiations. Despite a marked improvement in peripheral sovereign debt markets, Europe remains in recession, with a somewhat more protracted downturn now expected than in October.Commodity prices have remained at historically elevated levels, though temporary disruptions and persistent transportation bottlenecks have led to a record discount on Canadian heavy crude.  
 
In Canada, the slowdown in the second half of 2012 was more pronounced than the Bank had anticipated, owing to weaker business investment and exports. Caution about high debt levels has begun to restrain household spending. Relative to October, Canadian economic activity is expected to be more restrained. Following an estimated 1.9 per cent in 2012, the economy is expected to grow by 2.0 per cent in 2013 and 2.7 per cent in 2014. The Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated in October
 
While global tail risks have diminished as a result of a series of actions by European and American authorities, the inflation outlook in Canada is still subject to significant risks. The three main upside risks to inflation in Canada relate to the possibility of stronger-thanexpected growth in the U.S. economy, higher Canadian exports and renewed momentum in Canadian residential investment. The three main downside risks to inflation in Canada relate to the European crisis, more protracted weakness in business investment and exports in Canada, and the possibility that growth in Canadian household spending could be weaker.
 
Reflecting all of these factors, on 23 January the Bank decided to maintain the target for the overnight rate at 1 per cent.  While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.

Bank of Canada | Nuno Fontes | nuno@tradingeconomics.com
1/23/2013 3:08:10 PM