Nothing Untoward From The BoC

The Bank of Canada did what was expected of them – absolutely nothing. Today they held firm, and maintained their overnight rate at +1%, their corresponding bank rate at +1.25% and the deposit rate at +0.75%.

Canada’s inflation, similar to many other economies, remains low. The core-inflation rate is expected to stay well below the BoC target of +2% this year, mostly due to the on going economic slack. However, policy makers do anticipate inflation to rise in the coming few quarters on the back of a weaker CAD and higher consumer energy prices.

• Global expansion is expected to strengthen over the next three-years.
• Despite some recent softer readings in the US their recovery seems on track
• Europe has its problems, growth remains moderate, inflation is relatively benign and geopolitical uncertainty surrounding Ukraine has yet to filter through
• Chinese growth is to remain solid despite some financial vulnerabilities
• Global growth remain largely unchanged from January’s MPR: 2014 +3.3% and 3.7% in 2015 and 2016
• Canada’s growth to average about +2.5% for 2014 and 2015 and easing back to +2% in 2016
• Policy makers expect a lower “loonie” should provide support for the export market
• The BoC expects a rising global demand, fused with higher oil prices will stimulate business investment in Canada

Overall, the BoC still sees a gradual strengthening in Canada’s fundamentals directly effecting growth and inflation. This will obviously depend on the projected upturn in both exports and investment. The “as expected” release has the loonie ($1.1010) on the back foot after a bit of two-way action. There was nothing in the statement that alters the markets view that the BoC will begin its first rate move – a supposed hike – sometime in the next year.

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