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Bank of Canada - June 1, 2015

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Bank of Canada Commentary

Jun 01, 2015

The Bank of Canada (BOC) left its key overnight rate unchanged - at 0.75% - last week but, as usual, it did provide some useful insight into its analysis of where the Canadian economy might be headed.

Inflation in Canada continues to track in the direction the Bank forecast in its most recent Monetary Policy Review with the Consumer Price Index holding in the lower range of the 1-3% target set by the Bank (and the most recent April data also indicates this). The Core inflation rate, which excludes some volatile energy and food components, is tracking above 2%. The difference between the two rates is mostly a product of low oil prices and a low Canadian dollar. The Bank says that the underlying trend of inflation is in the 1.6-1.8% range.

The US economy is expected to return to solid growth in the second half of this year after a slow first quarter and this will help the Canadian economy in its continued path toward rotation to business investment and exports. Consumption levels in Canada are holding up well.

Despite the recent "back-up in global bond yields", monetary conditions around the world remain highly stimulative. The risks to the inflation profile in Canada remain largely unchanged since the Bank's last meeting, although the risks to financial stability remain elevated due to high household debt levels. The Bank sees these risks as generally as evolving as expected. The current level of monetary stimulus therefore remains appropriate and the Bank Rate remains unchanged.

The Bank's next meeting will be on July 15, 2015. After the release of Q1 GDP data two days after the Bank's rate announcement, speculation began that the July meeting could feature another cut in the Bank's key overnight rate.