Bank of Canada Interest Rate Decision - July 17, 2012
BCREA
ECONOMICS NOW
Bank of Canada
Interest Rate Decision - July 17, 2012
The Bank of
Canada has once again decided to keep its overnight rate at 1 per cent. The
statement released this morning in support of the interest rate decision noted
that global growth prospects have cooled since the Bank's April Monetary Policy
Report and this cooling will restrain Canadian economic activity. However, the
bank also noted that domestic factors, and in particular consumption and
business investment, will help support moderate growth. As we expected,
the Bank lowered its forecast for economic growth in 2012 from 2.4 per cent to
2.1 per cent and to 2.3 per cent in 2013, which matches BCREA's forecast.
Despite slower growth, the Bank still expects the economy to reach full
capacity by the second half of 2013, while inflation will remain at or very
close to 2 per cent over the Bank's projection horizon.
Most notable in the Bank's statement accompanying the interest rate decision
was that the Bank continues to include language suggesting a modest withdrawal
of monetary stimulus (ie. rate increases) as excess slack in the economy is
absorbed. This suggests that the Bank's timeline for tightening monetary policy
has not been materially changed by ongoing global economic uncertainty or
recent changes to Canadian mortgage rules. Absent any serious shocks to the
economy we expect the Bank to begin tightening in the first quarter of 2013.