The Bank of Canada's (BOC) statement signals that it is pushing back the time frame for a rate rise even further than currently expected, continuing the shift begun in February toward a more neutral policy stance and reflecting its latest downward revision in growth forecasts.
In its latest Monetary Policy Report released today, the BOC forecasts annual average growth of 1.5 percent in 2013, down from a January forecast of 2.0 percent, 2.8 percent in 2014, up from a previous 2.7 percent, and 2.7 percent in 2015.
"The economy is expected to reach full capacity in mid-2015, later than previously anticipated," the bank said in its policy report. In its January policy report, the BOC had expected the economy to reach full capacity in the second half of 2014.
Headline and core inflation is expected to remain subdued in coming quarters before gradually rising to the BOC's 2 percent target by mid-2015, also later than it forecast in January when it expected inflation to return to its target in the second half of next year.
In February Canada's headline inflation rate picked up to 1.2 percent in February, breaking a year-long trend of falling rates, but the BOC said this muted inflation reflected excess supply in the economy, heightened competitive pressure in the retail sector and some special factors, such as slower rises in regulated prices and pass-through of previous declines in agricultural prices.
In addition to the "muted outlook for inflation" and "continued slack in the Canadian economy", the BOC said policy rates could remain low for some time due to slower growth in household credit, which is likely to lead to a stabilization of household debt-to-income ratio around current levels.
"Despite the projected recovery in exports, they are likely to remain below their pre-recession peak until the second half of 2015 owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar," the BOC said, repeating its oft-voiced concern over the impact the strong dollar is having on the competitiveness of Canadian firms.
In the fourth quarter of 2012, Canada's Gross Domestic Product rose by 0.2 percent from the third for annual growth of 1.1 percent, the lowest rate since the fourth quarter of 2009.
But the BOC expects growth to regain some momentum through 2013 as exports pick up and business investment recovers.
On a annual basis, the BOC expects growth of 1.2 percent in the first quarter of 2013, down from a previous forecast of 1.4 percent, 1.2 percent in the second quarter, 1.6 percent in the third quarter and 2.1 percent in the fourth quarter.
Global economic growth is largely as anticipated by the BOC in January, with the U.S. expansion continuing at a modest pace as strengthening private demand partially offset by accelerated fiscal consolidation.
"The Bank expects global economic activity to grow modestly in 2013 before strengthening over the following two years," the BOC said, forecasting global growth of 3.0 percent this year, up from a previous forecast of 2.9 percent, and 3.6 percent in 2014 and 3.8 percent in 2015.
In April last year, the BOC first started to warn markets that it would have to raise rates at some point, partially due to its concern over high household debt.
But households started to rein in spending in light of slower growth in the second half of 2012, and in January this year the central bank said a rate rise was now less imminent than expected due to a slowdown in the rise of household credit and a more muted outlook for inflation.
At its previous meeting in March, the BOC further eased its bias toward higher rates, saying the policy stance was appropriate for the time being in light of better household balances, the slack in the economy and the continued muted outlook for inflation.
The BOC has held its target for overnight rates steady at 1.0 percent since September 2010.