CA: Bank of Canada Monetary Policy Report

Wed Oct 21 09:00:00 CDT 2015

The BoC's latest Monetary Policy Report (MPR) shows only limited challenges to the July edition. The profile to forecast economic growth has been revised for the second half of 2015 but shaded weaker in 2017 and 2018. Moreover, while expected headline inflation has been reduced over much of the forecast horizon, the core rate continues to move mainly sideways.

The monetary authority seems happy enough that the July domestic economy call was close to the mark over the medium term. That said, it also it acknowledges the ongoing threats from weak commodity prices and financial strains in some emerging market economies.

Third quarter real GDP is now estimated to have expanded 2.5 percent (saar) versus 1.5 percent last time but the fourth quarter rate has been moved down from 2.5 percent to 1.5 percent. As a result, anticipated full year growth is unrevised at 1.1 percent. Still, calendar year growth in 2016 is reduced 0.3 percentage points to 2.0 percent and 2017 nudged a tick softer at 2.5 percent. Against this rather lacklustre backdrop, full capacity is not seen being reached until mid-2017 and headline inflation is still only 1.6 percent at the end of next year. Core inflation, put by Governor Poloz at 1.5-1.7 percent late last month, is forecast broadly stable on the central bank's official gauge and hovers close to 2 percent over the entire projection period.

Accordingly, there is little new in today's report to excite financial markets. Domestic interest rates could well be on hold for some while longer yet.

The Monetary Policy Report is a quarterly report of the Bank of Canada's Governing Council. It presents the Bank's base-case projection for inflation and growth in the Canadian economy, and its assessment of risks. In July, 2009, the BoC began publishing four quarterly reports. This enables the Bank to provide the full context surrounding its views on the economy each quarter and provides a more consistent format for the publication.

Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.