What's Bank of Canada's Latest Update?

The Bank of Canada announced today that it is maintaining its target for the overnight rate at 1%.and noted that the Canadian economy is preceding as projected by the Bank in January's Report.

While inflation and growth were slightly higher than expected in the fourth quarter of 2013, the Bank expects slack in the economy to keep inflation below the Bank's 2%target this year. 

Speculation of an impending rate cut by the Bank of Canada has receded in recent weeks following a modest acceleration of inflation and stronger than expected economic growth.

The uptick in inflation and growth is in part due to a sharply lower Canadian dollar and policymakers at the Bank have welcomed the decline in the dollar.

A depreciation in the currency tends to be inflationary and impacts consumer prices in fairly short order while traditional monetary policy, through adjusting the overnight interest rate, impacts inflation only with a significant lag of 12 to 18 months. 

The lower loonie is helping to pull inflation higher, so its expected the Bank will likely maintain its target rate at 1 per cent until 2015 when economic conditions may require a gradual increase in the overnight rate. 

March 5/14

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