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Bank Of Canada Holds Rate Steady, USDCAD Falls

James Boston
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There was no great surprise from the Bank of Canada (BoC) this afternoon as the scheduled monetary policy meeting ended with the announcement of no change to the 1% target overnight interest rate. The accompanying policy statement from Bank noted that although core inflation had risen close to the 2% target level there had been a corresponding drop in energy prices, which takes the pressure off the general Consumer Price Index (CPI), this the Bank noted removes inflationary aspects from it’s decision for now particularly as it is continuing to detect slack in the economy.

The monetary policy committee’s deliberations included a discussion on the weakening of the global economy, this they stated has become particularly evident since July. The heightening of geopolitical tensions was additionally discussed as a factor that is likely to deter global growth in the immediate future. The US economy was singled out by the committee as ‘gaining traction’ which is serving to bolster Canadian exports. The BoC statement also contained references to weak domestic investment in business as well as a strong housing market and growing consumer spending.

In arriving at it’s decision to hold the target overnight rate steady at 1% once again the monetary policy committee looked at projected future growth rates in addition to a medium term inflation outlook. It noted that growth is projected to average close to 2.5% over the next year before moderating to around 2% by the end of 2016, a level that is lower but acceptable in the context of a much more stable economy. On the inflation side it was determined by the BoC that both core and general prices should remain in and around the target 2% level between now and the end of 2016. A press conference later this afternoon by the Bank’s Governor will offer more details around the BoC’s forward guidance on interest rates.

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