The Bank of Canada met expectations today, once again holding its key policy interest rate unchanged at 0.5%. Indications that fourth quarter growth likely beat the Bank’s expectations were counterbalanced against ongoing competitiveness challenges.
The Bank of Canada made clear its view that recent gains in inflation are likely to be temporary, and that its three new measures of core inflation continue to point to economic slack.
Moreover, the challenges the Bank identified at its last policy decision, namely the high level of the Canadian dollar (in broad terms), and elevated bond yields are still in play. The statement noted this fact, while also mentioning that ongoing gains in employment have come with subdued growth in wages and hours worked, in contrast to the United States.
This was another dovish statement from the Bank of Canada. The statement accompanying the rate decision continued the tone of recent communications, namely that the level of the loonie and movements in bond yields are not seen as helpful given the economic slack still remaining in Canada.
Indeed, the Bank of Canada once again contrasted the current economic situation in Canada with that in the U.S., with the clear message that unlike south of the border, the Bank of Canada will not be tightening monetary policy any time soon.
Today’s statement provides further confirmation of our view that the Bank of Canada will not be taking its foot off the accelerator. Over the near term, given the still significant economic uncertainties, particularly beyond Canada’s borders, we continue to see the risks to monetary policy as tilted towards further easing.