Overnight rate maintained at one per cent

The Bank of Canada today announced yesterday it was maintaining its overnight rate at 1 per cent.

"Inflation is close to the two per cent target and is evolving as the Bank anticipated in its July Monetary Policy Report (MPR)," said a release from the Bank. "Recent data reinforce the Bank's view that the earlier pickup in inflation was attributable to the temporary effects of higher energy prices, exchange rate pass-through, and other sector-specific factors rather than to any change in domestic economic fundamentals." The Bank said world economy is performing as expected and the recovery in Europe seems to be "faltering" as events in Ukraine weigh on confidence. In the states however, the Bank said a "solid recovery" seems to be back on track.

"In Canada, stronger growth in the second quarter has brought GDP to almost exactly the level the Bank had projected in July's MPR," said the release. "Canadian exports surged in the second quarter after a weak winter, supported notably by stronger U.S. investment spending and the past depreciation of the Canadian dollar.

"While an increasing number of export sectors appear to be turning the corner toward recovery, this pickup will need to be sustained before it will translate into higher business investment and hiring. Meanwhile, activity in the housing market has been stronger than anticipated. The Bank still expects excess capacity in the economy to be absorbed during the next two years."

Overall, the Bank said risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished. The balance of these risks is still within the zone for which the current stance of monetary policy is appropriate therefore continued one per cent rate.

The Bank said it remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks.

Tagged: Bank of Canada | Economy | one per cent | overnight rate | Uncategorized