CA: Bank of Canada Monetary Policy Report

Wed Jan 17 09:00:00 CST 2018

According to the BoC, inflation is now expected to remain close to 2.0 percent going forward. It reflects stronger economic activity and higher gasoline prices. The effects of various temporary factors are expected to dissipate over different time frames. In particular, inflation will likely ease in January 2018, reflecting the transitory effects of elevated gasoline prices a year earlier. Inflation is then expected to rise as the temporary effects of past fluctuations in consumer energy and food prices fade. The economy is now close to capacity.

The prospect of a notable shift toward protectionist global trade policies remains the most important risk surrounding the outlook. While the Bank's base-case scenario incorporates the adverse effects of related elevated uncertainty on firms' investment and export activities, it is otherwise predicated on existing trade arrangements over the projection horizon. The Bank is continuing to monitor NAFTA renegotiations. The Bank's calculations suggest that about 50 percent of US imports of goods from Canada received NAFTA preferential tariff rates in 2016, with significant variation across industries. NAFTA covers most services as well. However, it is difficult to predict the possible outcomes of trade negotiations and the timing, incidence and magnitude of their effects at this time.

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.