As was widely expected the Bank of Canada held overnight interest ratesat 1%. Yet in the decisions accompanying statement and Monetary PolicyReport signaled a noticeable shift in the Banks growth and inflationexpectations. The BoC is “neutral with respect to the timing and directionof the next change to the policy rate.” The subtle difference between thisstatement and last months is the addition of “neutral”. The Bank loweredits forecast for GDP as growth for exports and business investment lookssoft due to changes in the global economy (despite the cheaper loonie).In new language the Bank stated that it anticipates that inflation would bea touch softer but to fluctuate around 2%, due to “temporary effects”.Clearly the Banks view the recent uptick in CPI reads as not related tolasting domestics factors but transitional changes. The Banks relaxed,dovish view is warranted given the expectation that economic weaknesswill restrict any further acceleration in inflation.
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