FXStreet (Guatemala) – James Knightley, analyst at ING bank explained that the Bank of Canada has maintained its target for the overnight rate at 0.75%, in line with market expectations.
Key Quotes:
“After surprising markets with a 25bp in rate cut in January the bias had been towards the potential for further stimulus, but the tone of the press release, together with recent central bank comments, suggest a more balanced outlook now. Indeed, the BoC note that financial conditions remain “highly stimulative”, but this has to be viewed in the context of a partial recovery in the Canadian dollar now that oil prices have moved off their lows.”
“They acknowledge that inflation remains at the bottom of the 1 to 3% range, but that this is “largely due to transitory effects of sharply lower energy prices”. Indeed, core inflation is at 2.3% with the central bank noting the lagged influence of Canadian dollar depreciation on prices. As for activity, they “expect a solid return to growth in the second quarter” with the corporate sector driving the strength through exports and investment spending.”
“The BoC conclude that in the current environment the degree of monetary stimulus remains appropriate, which is a situation that we suspect will persist for several more months. With BoC Governor Poloz having suggested that the economy will return to full capacity in late 2016 it looks as though the next move in rates will be higher, something that we expect to see in 2Q16.”
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