Bank of Canada interest rate decision highlights:
- Bank of Canada maintains a neutral stance but more concerns on disinflation
- ‘The risks associated with elevated household imbalances have not materially changed, while the downside risks to inflation appear to be greater’
- ‘Overall, the balance of risks remains within the zone articulated in October’
- ‘Core inflation is being held down by significant excess supply and by the effects of heightened competition in the retail sector, which look to be more persistent than anticipated.’
- No reason to adjust expectation of gradual return to full production capacity around end-2015
- Underlying growth broadly in line with BOC projections in Oct
- BOC continues to see soft landing in housing
- Full statement
USD/CAD rose to a three-year high after the release to 1.0697. Although the BOC’s overall stance was unchanged, the vocal concern about low inflation confirms the risks are greater of a shift to dovish in the coming months.
If Canada is the inflation canary, expect other central banks to fret as well. “Heightened competition in the retail sector” is not a Canada-specific trend.
Offers at 1.07 have capped the move so far.