"A gradual normalization of policy interest rates" can be expected as inflation returns to target and excess capacity in the economy is used up"
- Stephen Poloz, Bank of Canada Governor
As it was widely expected Canadian policymakers stayed pat on the monetary policy, as trade gap widened, supporting a view current policy is appropriate as an expected rotation of demand to exports and investment has not yet come. The Bank of Canada Governor Stephen Poloz kept the key refinancing rate between commercial banks at 1%, prolonging a streak of 24 months of introducing no adjustments in policy. Poloz also pointed out a slack in the economy should probably start to disappear in the next year.
Also Wednesday Statistics Canada reported the nation's trade deficit surprisingly widened in July, due to weak demand in Europe, which fell to the lowest level since 2010. Canadian trade gap reached C$931 in the middle of summer, more than doubling previous month's gap of C$460 million. The figure even exceeds the most pessimistic forecasts, while the majority of analysts expected a deficit of C$250 million. Exports plunged 0.6%, while imports advanced 0.6%, with consumer goods climbing 1%. The so-called "slowest export recovery since World War II" has been a major drag on the economy so far, and with shipments to the European Union falling 16% in July, we might suggest the demand for Canadian goods will remain week in the foreseeable future.
© Dukascopy Bank SA