The Bank of Canada decided to leave its benchmark interest rate unchanged. The interest rate was kept at 1 percent for more than four years now. The Bank Rate was also kept at 1.25 percent and the deposit rate at 0.75 percent. Global economic growth has evolved broadly as anticipated in the Bank’s January Monetary Policy Report (MPR). The United States, Canada’s neighbor and key trading partner, saw a modest economic expansion with gradually increasing private demand. Major policy stimulus has been introduced in Japan. However, Europe remains in recession as to low confidence, fiscal austerity, and tight credit conditions. The BOC expects growth in Canada to bounce about 2.5 percent in the second half of 2013, nonetheless revised lower its annual average growth for 2013 to 1.5 percent. The Canadian economy is forecast to growth by 2.8 percent in 2014, and 2.7 percent in 2015, and returning to full-capacity in about mid-2015. In January, the central bank predicted gross domestic product would expand 2 per cent in 2013 and 2.7 per cent in 2014. Both total and core inflation are expected to remain subdued in coming quarters before gradually rising to 2 per cent by mid- 2015 as the economy returns to full capacity, the special factors that are weighing on core inflation subside, and inflation expectations remain well-anchored. In consideration to these factors, the Bank of Canada decided to sustain the target for the overnight rate at 1 percent, as the economy continues to face modest growth, with a muted outlook for inflation, and the evolution of imbalances in the Canadian housing sector. The current monetary policy stimulus is seen appropriate for the time, after which some withdrawal will be required, in consistency with achieving the 2 percent inflation target. The IMF in its World Economic Outlook advised the Bank of Canada to leave borrowing costs at their current level until economic growth is entrenched. But there is a possibility that Canada’s central bank will be tempted to respond to weaker growth by cutting interest rates.
EasyForexNews Research Team