"We think that interest rates will stay where they are for quite some time. So issuing a warning that they are almost ready to go up -- it's not the right timing."
- Stephen Poloz, Bank of Canada Governor
The Canadian Dollar is likely to lose ground versus its major peers as Canadian central bank claimed rates will remain on hold for some time, as policy makers assessing risks of a sharp correction in property value against the threat of subdued inflation. At the same time Poloz stressed out that October's decision to drop language about the necessity of raising interest rates in the foreseeable future were interpreted incorrectly, as he was trying to project a neutral stance. Housing market has gained pace in the recent months after a weak spell as people postponed buying plans in the wake of higher interest rates that was triggered by concerns of the upcoming tapering from the Federal Reserve. Therefore, there is a risk of further rise in property prices that can pose a risk to both the economy and financial system, according to Poloz.
During the last policy meeting the Bank of Canada kept the key refinancing rate at 1% as inflation hovered well below the target level for a long period of time. In October consumer prices stood at 0.7%, level, which is 1.3% lower than the target. According to central bank's projections, it will take about two years for inflation to get back to the normal level of 2%, as domestic economy is expected to return to its full capacity by that time. Howbeit, on the back of fundamental data the USD/CAD currency pair is likely to be strongly bullish in the foreseeable future.
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