The Bank of Canada (BOC), which surprised markets by cutting its rate by 25 basis points in January to counter some of the dampening impact on the economy from the fall in oil prices, added that inflation and economic growth was largely in line with its assessment in April and the "assessment of risks to the inflation profile has not materially changed."
The Canadian dollar, known as the loonie, started depreciating against the U.S. dollar in July 2014 and fell to 1.2790 in mid-March - from 1.06 at the start of 2014 - as investors speculated that the BOC could cut rates further. But a rebound in oil prices and optimistic comments by BOC Governor Stephen Poloz in April changed investors' perception and the loonie strengthened.
By mid-May the Canadian dollar had risen to 1.19 before easing back to 1.247 today, still a decline of almost 7 percent since the start of this year.
The impact of last year's halving of crude oil prices is is still having an impact on Canada's consumer price inflation, which fell to 0.8 percent in April from 1.2 percent, below the BOC's 1-3 percent inflation target range. But the BOC said core inflation remains above 2 percent - it was 2.3 percent in April - "boosted by the pass-through effects of past depreciation of the Canadian dollar."
Consistent with the "persistent slack in the economy," the BOC estimates that the underlying trend of inflation is 1.6 to 1.8 percent.
The BOC repeated that is sees economic activity picking up in the second quarter, noting that recent data suggest that consumption was holding up relatively well despite the impact of lower oil prices on overall income.
In April the BOC cut its forecast for first quarter growth to zero, but raised its forecast for second quarter growth to 1.8 percent and third quarter growth to 2.8 percent. Annual growth in the fourth quarter of 2014 was 2.63 percent, down from 2.75 percent in the third quarter.
The Bank of Canada issued the following statement: