BOC Leaves Rates Unchanged and Signals Recovery Is Undergoing

The Bank of Canada announced its decision on Benchmark interest rates today, where the BOC decided to leaves it rates unchanged at 0.25% inline with expectations, since the Canadian economy is still recovering from the worst recession since WWII, although the Canadian economy seems to be recovering from the recession inline with other major economies around the world.

The BOC signaled that global economies are undergoing recovery, where it is supported by the recent improvement in financial conditions and stronger domestic demand levels in several emerging markets around the globe; while the BOC also signaled that the outlook for global growth in 2010 and 2011 seems to be stronger than their prior projections back in October.

The BOC expects the Canadian economy to continue growing during the fourth quarter of 2009, where the economy is expected to have expanded further amid the recent improvement in economic activity. Moreover, the BOC signaled that price pressures started to increase over the past few months, where CPI rebounded into positive territories, while core inflation increased slightly above expectations.

Yet, the BOC still believes that there’s huge slack in economic activity, where the BOC estimated that the economy was operating about 3.25% below its production capacity in the fourth quarter of 2009; however, the BOC still expects the Canadian economy to return back to its long term growth potentials by the third quarter of 2011.

Moreover, the BOC expects the Canadian economy to grow by 2.9% in 2010 and by 3.5% in 2011 after contracting by 2.5% in 2009, while inflation is expected to return back to its 2% target in the third quarter of 2011 as well. The BOC signaled that the strength of the Canadian dollar alongside weak demand levels from the United States continue to weigh down on economic activity in Canada.

The BOC indicated that interest rates will probably remain unchanged through the second quarter of 2010, while the BOC also highlighted that risks to inflation haven’t changed from the October meeting, when the BOC judged that upside risks to inflation are represented through a stronger than projected global and local demand, while downside risks are represented through a more protracted global recovery and persistent strength of the Canadian dollar, where both would weigh down on economic activity as well as prices.

The Canadian economy seems to be on its way to recover from the worst recession since WWII, however, it will take a long time before the Canadian economy can fulfill its long term growth potentials, yet the recent improvement in economic conditions all around the globe started to show its effects; meanwhile, there still are some risks that conditions might deteriorate further and accordingly, central banks around the globe will be rather careful when they decide to change their monetary policy stance.

Earlier today, the leading indicators index was released for the month of December, where the index rose by 1.5% following the prior reported rise of 1.3% and well above median estimates of 1.0%, as the Canadian economy seems to be indeed expanding further amid the recent improvement in economic activity and inline with the BOC statement released today.

The Canadian economy is highly dependant on the U.S. economy, since the U.S. is Canada’s largest trading partner, and weak demand levels from the United States will surely weigh down on economic activity in Canada, while a stronger Canadian dollar will only hurt the recovery, since Canada is a net exporting economy, and net exports play a major role in economic growth.

The Canadian economy will continue to recover over the upcoming few months, and accordingly we should expect unemployment to drop over the upcoming period, although the pace of hiring should remain weak for a while, since employers are still uncertain over the course of recovery, but overall we don’t see any reason as to why the Canadian economy shouldn’t emerge out of the recession safely…

Ecpulse

disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk