Wednesday, September 4, 2013

Canada holds rate, repeats stimulus to remain in place

    Canada's central bank held its target for its overnight rate steady at 1.0 percent, as expected, and repeated that the current "considerable monetary stimulus" will remain in place as long as there is significant slack in the Canadian economy, the inflation outlook remains muted and that household debt continues to decline.
   The Bank of Canada (BOC), which has maintained its overnight rate at 1.0 percent since September 2010, also repeated its slight tightening bias, saying that it would eventually normalize its rates - in other words raise rates - as the economic conditions return to normal.
    Although the global economy continues to expand as expected by the BOC, it said the "dynamic has moderated" and current uncertainty "appear to be delaying the anticipated rotation of demand in Canada towards exports and investment."
    While the housing sector has been slightly stronger than anticipated, the central bank said household credit growth has continued to slow and mortgage rates are higher, pointing to a continued constructive evolution of household imbalances.
    "Looking through the choppiness of the recent data, the level of Canada's GDP is largely consistent with the Bank's July forecast," the BOC said, adding the output gap is expected to begin to narrow in 2014. A closing of the output gap should also mean that inflation rate slowly returns to 2 percent.
    Canada's economy expanded by 0.4 percent in the second quarter from the first quarter for annual growth of 1.4 percent, marginally higher than 1.36 percent in the first quarter and the 1.01 percent in the fourth quarter.
    Inflation rose to 1.3 percent in July from 1.2 percent in June, but the last time the inflation rate was the BOC's 2 percent target was
    Its latest forecast from July calls for headline inflation to return to 2 percent by mid-2015.
    Economic growth is forecast at 1.8 percent this year and by 2.7 percent in both 2014 and 2015 helped by rising exports.


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