Bank of Canada Interest Rate Decision
News flash from BCREA ECONOMICS NOW
Bank of Canada Interest Rate Decision – September 5, 2012
No surprises from the Bank of Canada this morning. The Bank left its overnight rate at 1 per cent, where it has been since September 2010. The statement released this morning in support of the interest rate decision noted that while global economic headwinds continue to restrain economic activity, the Canadian economy is growing roughly in line with its production potential. On inflation, the Bank sees core inflation returning to its 2 per cent target over the next 12 months.
The Bank once again made clear that a gradual withdrawal of monetary stimulus may be become appropriate as excess supply in the Canadian economy is absorbed, but that such withdrawals would need to be weighed against domestic and global economic developments. Given ongoing uncertainty in the Euro-zone and the unresolved “fiscal cliff” in the United States, that caveat means that the Bank will likely hold off on raising rates until early 2013. We expect monetary tightening to proceed very cautiously, with perhaps a 25 to 50 basis points increase over 2013, bringing the Bank’s overnight rate to between 1.25 and 1.5 per cent by the end of next year.
