Highlights from the Bank of Canada interest rate meeting July 2014
- BOC says they are neutral on rate direction and that recent higher inflation pressure are temporary
- Underlying inflation pressures remain muted given persistent slack and intense retail competition ” Does not expect the recent monthly momentum to persist”
- Higher inflation due to temporary effects like costlier energy, exchange rate pass through rather than change in domestic fundamentals
- Changes statement language on inflation from “downside risks were as important as before” to “risk of downward drift in inflation expectations has diminished”
- Sees Q2 2014 core inflation at 1.6%, Q3 1.7%, Q4 1.8%, Q1 2015 1.6%
- CPI at 2.1% Q2 2014, 2.0% Q3, 2.2% Q4
- Pushes back expectations of return to full capacity by 3 months
- Pushes back Core inflation hitting 2% target to mid-2016 from early 2016
- Sees Q2 2015 inflation dipping back below 2% and then rising into Q1 2015
- Keeps Q2 2014 GDP forecast at 2.5% y/y, lowers Q3 to 2.3% from 2.6%, sees average GDP for 2014/16 at 2.25%
- Closing output gap is reliant on continued stimulative monetary policy and also hinges on stronger exports and business investment
- Expects soft landing for housing market, household imbalances evolving constructively, risks remain elevated
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