The Bank of Canada kept its overnight rate target unchanged at 0.5 percent today, in line with the expectations of most analysts. The statement released by the Bank contains some of the most strangulated prose imaginable -- "the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate" (!) -- but generally offers a balanced view of the near-term outlook. Inflation is within the target range despite some upward pressure from the weaker exchange rate; household spending is strong and growth in the US economy is providing a lift to exports; slowing growth in China needs to be watched; and the financial system is in good shape.
One word you won't find in the press release is "recession". The media have been using the term ad nauseam ever since Stats Can reported a decline in GDP for the second quarter, even though all indications are that the economy returned to a positive path as long ago as June. That resumption of growth has allowed the Bank to avoid a rate cut that might have been seen as politically-loaded, with the election now a mere six weeks away.
Prime Minister Stephen Harper is no doubt relieved at the Bank's inaction, as his government's supposedly adept stewardship of the economy has been a key plank in what's starting to look like a very shaky re-election platform. However, it's unlikely that either the media or the opposition parties will stop using the R-word, so today's rate decision is unlikely to provide the Tories with any lasting comfort. All the evidence at this point is that the voting public is keen to see the back of Harper; barring unforeseen events, which can never be ruled out in such a long campaign, the Bank of Canada's next rate decision (on October 19, two days after election day) is likely to be overshadowed by the ongoing formation of a new government. It's a safe bet that the Bank won't want to cut rates then.
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