CA: Bank of Canada Monetary Policy Report

January 18, 2017 09:00 CST

The BoC's new Monetary Policy Report is largely unexciting and shows the Canadian economy to be performing much as expected by the central bank.

This is reflected in a suite of updated economic forecasts that show no significant differences from the previous edition released in October. Hence, real GDP growth this year has been raised just 0.1 percentage points to 2.1 percent while 2018 is left unchanged at also 2.1 percent. Private consumption (contributing 1.3 percentage points in both years) remains the main driving force but business investment has been shaded somewhat in 2017. Real GDP growth this quarter is seen accelerating from an unchanged fourth quarter estimate of 1.5 percent (saar) to 2.5 percent.

Meantime, the output gap is not projected to be closed until around the middle of next year, essentially in line with October's call, which means that the new inflation profile is also much the same. Headline CPI inflation is now put at 2.1 percent at end-2017, up a couple of ticks from October, but matching the previous forecast of 2.0 percent by end-2018.

Today's updated forecasts provide plenty of justification for the BoC's decision to leave policy on hold again.

Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).

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.