Tags

,

Dated: April 15, 2015

 As was widely expected, the Bank of Canada kept the overnight rate on hold at 75 basis points today. To justify its ‘stay the course’ position, the Bank cited that the downward pressure on inflation from sluggish economic growth in the first half of 2015 is likely to be offset by the upward pressure on prices stemming from the temporary effects of sector-specific factors and pass-through from the lower loonie.

 According the Bank, the global outlook is unfolding broadly as expected, thanks to many central banks having eased monetary policies in recent months to counter persistent economic slack and low inflation. Meanwhile, after closing out 2014 on a strong note, the U.S. economy has stumbled in the Q1 thanks to a second consecutive harsh winter. However, the Bank expects strong U.S. growth in resume beginning in Q2.

 At the same time, Canadian economic growth in Q1 is shaping up to be much weaker than the 1.5% annualized the Bank had expected back in January. However, the “Bank’s assessment is that the impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger.” This view is premised on the Bank’s continued optimism for a rotation toward an export and manufacturing led recovery. Overall, Canadian real GDP is expected to grow by 1.9% in 2015 and 2.5% in 2016 (January forecasts were 2.1% and 2.4% respectively).

 Meanwhile, the Bank of Canada raised its inflation forecast reflecting slightly stronger readings seen already this year. However, the Bank expects core inflation to remain near to 2% over the forecast horizon as the upward pressure from past Canadian dollar depreciation offsets downward pressure from excess supply in the economy.

 All told, the Bank believes that “risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected.”

Advertisements