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Bank of Canada Overnight Rate Unchanged Print E-mail
Daily Forex Fundamentals | Written by TD Bank Financial Group | Mar 06 13 16:48 GMT

Bank of Canada Overnight Rate Unchanged

As expected, the Bank of Canada left its benchmark overnight rate unchanged at 1.00%.

The Bank described the global economic outlook as "broadly consistent" with its projection. The recentsequestration cuts in the U.S. were cited as a factor making the fiscal dragon the U.S. more front-loaded, but still in-line with its two year outlook for the U.S. economy.

On the domestic front, the Bank recognized the continued slack in the Canadian economy with the weakQ4 GDP reading and current soft inflation environment, but "expects growth in Canada to pick upthrough 2013, supported by modest growth in household spending combined with a recovery in exports and solid business investment."

The outlook for inflation was subdued, with core andCPI inflation expected to remain at their current lowlevels in the "near term, before rising gradually toreach 2 per cent over the projection horizon".The Bank also recognized the healthier evolution ofhousehold credit and expects further moderation in this regard.

Key Implications

Given the current economic environment - both globally and domestically - today's interest rate decision came in as expected.

The Bank highlighted the soft numbers that were recorded in recent months. Indeed, Q4 real GDP(+0.6% annualized) released last week point to theeconomy currently running in neutral to finish 2012.The weak hand-off from December (-0.2%, m/m)also means that 2013 will not have a rolling starteither. These readings suggest that there exists downside risk to the Bank's 2.3% real GDP forecast in 2013Q1.

Persistent weakness in inflation - January's reading marked the tenth consecutive month that inflationhas come in below the Bank's 2.0% target - alsopoints to the Bank remaining on the sidelines until 2014 when it comes to interest rate moves.

The forward-looking language still possesses an upwardbias regarding interest rate movements, butless urgency was communicated relative to January.

 

About the Author

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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