December 14, 2009
Paul Vieira, Financial Post
OTTAWA — After months of uncertainty, the economic recovery now appears to be “solidly entrenched,” the Bank of Canada said Tuesday, indicating its forecast for growth should unfold as envisaged.
Still, in its latest interest rate announcement, the central bank reiterated, as expected, its conditional commitment to keep its key policy rate at a record low 0.25% until June 2010 as inflation is still not expected to hit its preferred 2% target until the second half of 2011.
Recent data – from retail sales to a stunningly strong jobs report for November — have painted a mostly cheer picture of the Canadian economy, analysts say, even though third-quarter GDP growth of 0.4% annualized came in well below the central bank’s 2% expectation.
Since the central bank’s latest economic forecast in October, “global economic developments have been slightly more positive and the global outlook has improved modestly,” the bank’s governing council said in its statement, adding though that “significant fragilities” remain.
The central bank said the composition of economic growth is unfolding as expected, highlighted by a shift toward stronger domestic demand and less reliance on exports.
“The main drivers and the profile of the projected recovery in Canada remain consistent with the bank’s [outlook],” it added. “The bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2% target in the second half of 2011.”
According to the central bank’s outlook, Canada is expected to grow 3.3% this quarter, followed by expansion of 3% next year and 3.3% in 2011. Predictions for strong growth gained steam late last week when data indicated the Canadian economy added 79,000 jobs in November.
Further, the central bank on Tuesday played down the impact of the stronger dollar, even though it acknowledged it remained a key risk to its forecast, and “could act as a significant further drag” on growth and inflation. The stronger loonie, which has advanced as much as 25% this year against its U.S. counterpart, led to a surge in imports in the third quarter – resulting in net exports acting as a drag on the economy of roughly 5.3 percentage points.
Since the last rate announcement, however, the dollar has on average traded a couple of cents below the central bank’s working assumption of a US96¢ loonie.
Most analysts were looking for any change in nuance in the bank’s statement – in particular a hint or two that it might move before its conditional pledge to keep rates at a record low until June 2010 given the surge in domestic consumption as households take advantage of record low borrowing costs.
Instead, the central bank reiterated that its target rate of 0.25% “can be expected” to remain intact until the end of the second quarter of next year. The pledge is conditional on inflation hitting the 2% target in the third quarter of 2011, as the bank expects.
The last time the bank raised its key policy rate, to 4.5%, was in July of 2007 – and shortly afterward the first signs of the credit crisis emerged.
Some economists, such as Ryan Brecht of Action Economics, expect the central bank to begin hiking its policy rate, and aggressively, starting in the second half of next year.
In a note released Tuesday morning, Mr. Brecht, the firm’s senior North American economist, said he envisaged the Bank of Canada raising its target rate by 175 basis points before December of 2010, for a policy rate of 2%, or “more normal levels.” Still, that would be below the 3% level in September of 2008, when Lehman Bros. collapsed, or the 4.5% peak hit more than two years ago.
Financial Post
Bank of Canada lowers rate
February 4, 2008
Bank of Canada lowers overnight rate target by 1/4 percentage point to 4 per
cent
OTTAWA – The Bank of Canada today announced that it is lowering its target
for the overnight rate by one-quarter of one percentage point to 4 per cent.
The operating band for the overnight rate is correspondingly lowered, and
the Bank Rate is now 4 1/4 per cent.
In the second half of 2007, the Canadian economy grew broadly in line with
the Bank’s expectations in the October Monetary Policy Report (MPR). Despite
some slowing in growth in the fourth quarter, the Canadian economy continues
to operate above its production capacity. Both core and total CPI inflation
have been lower than projected in the MPR, largely reflecting a price-level
adjustment related to increased competitive pressures in the retail sector
stemming from the level of the Canadian dollar.
Financial market conditions have deteriorated since October, leading to a
tightening of credit conditions in industrial countries. Given this, and a
deeper, more prolonged decline in the U.S. residential housing sector, the
2008 outlook for the U.S. economy is now significantly weaker than at the
time of the October MPR.
For Canada, the effects of the weaker U.S. economic outlook will lead to
additional downward pressure on export growth. However, despite tighter
credit conditions, domestic demand in Canada is projected to remain strong.
This strength is supported by continued income growth associated with the
increase in commodity prices since October, which has led to further gains
in our terms of trade. Overall, the Bank now projects weaker growth in 2008
than was expected in October, with the economy moving into modest excess
supply in the second quarter of this year. Somewhat stronger growth in 2009
brings the Canadian economy back into balance in early 2010. The inflation
projection has also been revised down since October, especially for 2008,
primarily reflecting the price-level adjustment noted above and the recent
one-percentage-point cut in the GST. Both core and total CPI inflation
should fall below 1 1/2 per cent by the middle of this year before returning
to the 2 per cent target by the end of 2009. On the whole, the Bank judges
that the risks to this inflation projection are roughly balanced.
In line with this outlook, the Bank has decided to lower the target for the
overnight rate and further monetary stimulus is likely to be required in the
near term to keep aggregate supply and demand in balance and to return
inflation to target over the medium term.
The Bank’s detailed projection for the economy and inflation, and risks to
the projection, will be published in the Monetary Policy Report Update on 24
January 2008.
How a Lender Approves You
August 23, 2006
Credit History
Your record of payment on previous and current obligations. Lenders may enquire about your record at the appropriate Credit Bureau. Read more
Mortgage Insurance
August 23, 2006
"Mortgage insurance" is one of the most ambiguous and least understood terms in the industry. This is because it can take on any of the following radically different meanings in different situations: Read more
Selecting a Home
August 23, 2006
Selecting a Home Type
Often the selection of a first home is a chance event…
friends are selling their condo and will give you a great deal if you buy from them privately. Read more
Using Your RRSP
August 23, 2006
In February of 1992, the Canadian Federal Government introduced the "Home Buyers’ Plan" (HBP), which allows RRSP planholders who are also first time home buyers to use up to $20,000 of their RRSP to apply to the purchase of their home. Read more