As universally expected, the Bank of Canada left its target interest rate unchanged at 0.5 percent today. The statement accompanying the announcement was concise almost to the point of being curt.
In brief, the Bank is "looking through" the 2.1 percent rise in headline CPI in the year to January, believing that its three new indices of core inflation all show "Material excess capacity" in the economy. Although GDP growth in the final quarter of 2016 may have been slightly higher than expected -- and we'll know soon enough; the data are due for release tomorrow (Thursday) -- the Bank sees exports continuing to be held back by competitiveness issues.
Perhaps the most meaningful segment of the statement is the reference to "persistent economic slack in Canada, in contrast to the United States". This statement principally reflects the much higher unemployment rate in Canada, together with the marked absence of any labour cost pressures. There could be no clearer indication that the Bank of Canada has no intention of following any rate moves that the Federal Reserve may make during the remainder of this year.
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