The Bank of Canada strengthened its bias for raising interest rates, retaining its outlier status among the Group of Seven nations, citing rising household debts amid a â€œmoderateâ€ economic recovery.
Policy makers led by Governor Mark Carney kept the benchmark rate at 1 percent where itâ€™s been more than two years and said â€œsome modest withdrawal of monetary policy stimulus will likely be required.â€ The decision to keep the rate unchanged was expected by all 26 economists in a Bloomberg News survey, while some had also said the Ottawa- based bank would weaken or drop its past wording that higher rates â€œmay become appropriate.â€
â€œWhile global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion,â€ policy makers led by Governor Mark Carney, 47, said in a statement today. The statement also made a new reference to â€œimbalances in the household sectorâ€ as influencing the timing of rate increases and said that household debts, already at record highs, will rise further.
Todayâ€™s decision follows Carneyâ€™s Oct. 15 speech where he left out a reference to tightening monetary policy and said Canadaâ€™s exports and investment are being curbed by global weakness. It also contrasts with easier monetary policies introduced in recent months by the U.S. Federal Reserve and European Central Bank President Mario Draghi.
Global monetary policy and â€œsafe haven flowsâ€ are influencing the Canadian dollar, the bank said in its statement. Exports are still being restrained by the currencyâ€™s â€œpersistent strength,â€ leaving consumption and business investment to drive the recovery.
â€œReflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.â€
The highlighted section has replaced the statement â€œsome modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term.”
Not as dovish as the market wanted.
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