Bank of Canada Maintains Overnight Rate at 0.5%

The Bank of Canada announced today that it is keeping the overnight rate at 0.5 per cent, noting that inflation is evolving in line with the Bank's outlook, though total inflation remains near the bottom of the Bank's 1 to 3 per cent target range.  

Removing the impact of low oil prices and other temporary factors, the Bank judges that the underlying trend in inflation is currently 1.5 to 1.7 per cent.  The negative impact of low commodity prices is still being felt in the Canadian economy, prompting the Bank to trim its growth projection for 2015 to just 1 per cent, as well as revising down its forecast for real GDP growth in 2016 and 2017 to 2 per cent and 2.5 per cent respectively. 

Growth in the Canadian economy appears to be firming in the second half of the year. Third quarter real GDP growth is currently tracking at 2.5 per cent on an annual basis and core inflation continues to hover near the Bank's target of 2 per cent.

Moreover, the outlook for growth next year may be somewhat brighter than the Bank currently forecasts given the spending intentions of the new Canadian government.  If so, some of the burden on monetary policy will be lifted, making further rate cuts less likely, anticipating  the Bank will remain on hold through the rest of 2015 and much of 2016, with a chance of tighter monetary policy toward the end of next year. 

BCREA October 21/15

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