No rise in the bank rate today, possibly not until 2018
Bank of Canada Interest Rate Announcement - April 12, 2017
The Bank of Canada announced this morning that it is
holding the target for its overnight rate at 0.5 per cent. In the press release
accompanying the decision, the Bank noted that economic growth has been faster
than previously expected, boosted by what the Bank sees as temporary spending
from the oil and gas recovery and a boost to consumer spending by the Canada
Child Benefit. However, export growth remains challenged and business investment
is low. Therefore, the Bank judges that it is too early to conclude that the
economy has turned a corner. In addition, CPI inflation is trending below its 2
per cent target while the Bank's three new measures of core inflation continue
to drift lower.
That downward trending inflation, along with uncertainty
in United States policy, seems to be the main barriers keeping the Bank from
raising its benchmark overnight rate. While there is some remaining slack in the
economy, as measured by the output gap, the Canadian economy has been growing
well above the Bank's estimate of potential growth (1.5 per cent) for three
consecutive quarters including a first quarter 2017 in which available data
points to above 4 per cent growth. In addition to strong GDP numbers, the
economy is adding jobs at a rate of 35,000 per month over the past six months,
the highest level of job growth since 2010. Should this momentum continue, it is
likely we will begin to see a more hawkish Bank of Canada in the second half of
the year and a first rate increase in early 2018.