BoC Hold Steady – Ukraine Increases Uncertainty

The Bank of Canada says the Ukrainian crisis has added a jolt of “geopolitical uncertainty” to its economic outlook and roiled financial markets.

The central bank nonetheless kept its key overnight interest rate unchanged at 1 per cent Wednesday, exactly where it’s been since September 2010.

At the same time, the bank also dialed back its recent anxiety about disinflation on the home front, noting only that “downside risks to inflation remain important.”

“Excess supply in the economy and competition in the retail sector will keep inflation well below the two per cent target this year,” the bank said in its second rate announcement of 2014.

Bank of Canada Governor Stephen Poloz has previously warned about worsening disinflation risks, sparking speculation about a possible rate cut to boost the economy. The bank uses monetary policy to try to keep inflation running at or near a two per cent annual rate.

Many economists say a rate cut is likely off the table for now. Most expect the bank’s next move will be rate hike, sometime next year.

The central bank also dismissed recent warnings from about a possible crash of Canada’s housing market. “Recent data support the bank’s expectations of a soft landing in the housing market” and stabilizing household debt levels, the statement said.

The bank acknowledged that a number of key measures of the economy are starting to look better, including inflation, GDP growth and exports.

The Globe & Mail

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell