The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States. The Bank has made initial assumptions about prospective tax policies only, resulting in a modest upward revision to its US growth outlook. Overall, the global economy is strengthening largely as expected and prices of some commodities, including oil, have risen. The rapid back-up in global bond yields, partly reflecting market anticipation of US fiscal expansion, has pulled up Canadian yields relative to the October Monetary Policy Report (MPR).
In contrast to the United States, Canada’s economy continues to operate with material excess capacity. While employment growth has remained firm, indicators still point to significant slack in the labour market. The resource sector’s adjustment to past commodity price declines appears to be largely complete, but negative wealth and income effects will persist. Meanwhile, the Canadian dollar has strengthened along with the US dollar against other currencies, exacerbating ongoing competitiveness challenges and muting the outlook for exports. Consumption is expected to remain solid, while residential investment will be tempered by previously announced changes to housing finance rules and by mortgage rates that have risen in response to higher bond yields. Federal and provincial fiscal measures are still expected to support growth in 2017.
via Bank of Canada
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