May 29, 2013
The Bank of Canada once again opted to leave its overnight target rate at 1 per cent. The Bank expects first quarter growth to be stronger then its original projection of 1.5 per cent, and forecasts that the remainder of the year will remain in line with its April projection. The Bank expects inflation will remain subdued before rising to 2 per cent in mid-2015 when the economy returns to full capacity. The Bank once again stated that the considerable monetary policy stimulus currently in place will remain appropriate for an unspecified “period of time” after which some withdrawal will likely be required.
The Bank of Canada remains caught between the rock of a muddling economy and the hard place of elevated household debt burdens. If the second half of this year unfolds as most forecasters expect, economic growth should accelerate, helping inflation to get back on a path to the Bank’s 2 per cent target. However, if that scenario does not unfold and the economy continues its slow growth trend, the “period of time” the Bank has noted may stretch out longer than the Bank currently has in mind. Our own analysis of the Canadian economy suggests there will not be any movement on interest rates until late 2014.
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