- Douglas Porter, Bank of Montreal chief economist
The Bank of Canada maintained its target for the overnight rate at 0.75% for a third consecutive meeting, underscoring that growth and inflation are in line with expectations. Most economists now expect the bank to hold the line on interest rates for a while unless economic conditions deteriorate significantly. Consumer inflation is near the bottom of the central bank's 1%-3% target range, largely due to the transitory effects of considerably lower energy prices. Seeing through a number of temporary factors, the BoC estimates that the underlying trend of inflation is 1.6%-1.8%, consistent with persistent slack in the economy. While a weak first quarter in the US, Canada's main trading partner, questioned economy's strength, policy makers expect a return to robust growth in the June quarter. This will spur the rotation of demand in Canada toward more exports and business investment. Recent indicators point to consumption in Canada remains solid, given the impact of lower oil prices on gross domestic income, the BoC said.
Also, the central bank expressed its concerns about the Canadian Dollar's recent rally amid a slew of encouraging economic data and crude oil prices, which have jumped 40% this year since their January lows. The BoC signalled the Loonie and its recent rally might be a potential source of damage to growth of Canada's export-oriented economy this year.
© Dukascopy Bank SA