Bank of Canada Holds 1% Overnight Rate

By Andrew Rickard | July 18 2014 07:25AM

On July 16th, the Bank of Canada announced that, despite a higher inflation rate of around two per cent over the last few months, it has decided to keep the overnight rate at one per cent.

"Recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamentals," reads the statement. The Bank expects inflation to remain around the two per cent mark for the next two years as these temporary effects ease.

The Bank was not sanguine about the current global economy and says the outlook is somewhat weaker than previously forecast. "Serial disappointment with economic performance during the past several years has mainly reflected the impact of private-sector deleveraging, fiscal consolidation and, especially, the lingering effect of uncertainty on business investment and trade."

However, the Bank does expect the lower Canadian dollar and increasing global demand to lead to a pickup in exports, and notes that household imbalances continue to "evolve constructively", saying that "recent data are broadly consistent with a soft landing in Canada's housing market."