The Bank of Canada (BoC) announced today that the target overnight rate would remain at 0.5%. The tone of the statement was generally upbeat and less dovish than the last statement, released on March 1.
The statement recognized stronger global economic growth, while acknowledging that the BoC outlook still reflects uncertainty around U.S. fiscal and trade policy. The BoC mentioned that consumer spending, due to the Canada Child Benefit, and spending in the oil and gas sector had caused economic growth to pick up faster than it had previously forecast. Residential investment and robust employment growth were also mentioned as contributing to recent stronger growth.
The BoC Monetary Policy Report showed growth in Canadian GDP is expected to be up 2.6% for 2017 (previously 2.1%) and 1.9% in 2018 (previously 2.1%). The Consumer Price Index (CPI) was described as being at the 2% target, as higher oil prices and other temporary factors had filtered through the economy. The BoC expects those effects on CPI to reverse somewhat in the coming months. Potential output growth is expected to gradually improve over the next few years.
The BoC did express that even though employment growth has been strong, wage growth and hours worked have generally been weak. Also, business investment and export growth have been disappointing relative to previous cycles.
When asked if a rate cut is still possible, BoC Governor Stephen Poloz said that a cut was not discussed at the meeting and their policy stance was described as “decidedly neutral”. Given that significant uncertainties remain, the BoC outlook could change if downside risk appears to be increasing.
The BoC has become more optimistic in its overall economic outlook, but retains some level of caution in its forward-looking view. Unless something changes abruptly, the BoC has set the stage for monetary policy to be on hold for the foreseeable future.
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