The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation continues to evolve in-line with the Bank of Canada’s forecast while economic activity continues to be underpinned by solid household spending and strong demand from the US economy.
With the economy seemingly improving and core inflation still holding firm near the Bank’s 2 per cent target, policymakers opted to stay the course and allow recent loosening of monetary policy to work its way through the system. We expect that growth will pick-up in the second half of the year, helped out by an acceleration of the US economy and stable oil prices. That should translate to no further action by the Bank of Canada in 2015, though recent volatility in global financial markets could prompt a shift in thinking. That said, central banks prefer to avoid bringing interest rate close to the so-called zero lower bound. Therefore, in the absence of a major financial or economic shock, the Bank will likely hold rates constant until a healthy and sustainable rate of economic growth resumes