Analysts at Nomura explained, that in line their expectations, the Bank of Canada (BoC) left its policy rate at 0.50%.
Key Quotes:
“Moreover, as expected, the policy stance remained unchanged, with the BoC reiterating that “the risks to the profile for inflation are roughly balanced” and that “the Bank’s Governing Council judges that the current stance of monetary policy is appropriate”, suggesting a neutral policy stance and that the BoC is not considering further easing.
On growth, the BoC noted that “The global economy is progressing largely as the Bank anticipated” and that “the U.S. expansion remains broadly on track”.
The BoC noted that “growth in the fourth quarter was not as weak as expected, but the near-term outlook for the economy remains broadly the same”. The BoC also highlighted the recent pickup in non-energy exports and some positive effects from the weaker exchange rate, saying that “Non-energy exports are gathering momentum, particularly in sectors that are sensitive to exchange rate movements.”
On the Canadian dollar, the BoC attributes the strengthening in the currency to the rebound in oil and other commodity prices and to “shifting expectations for monetary policy in Canada and the United States”. This suggests the BoC is not too concerned by its appreciation, as it remains supported by fundamentals.
As has been the case for some time, inflation is not a worry for the BoC. It continues to expect headline inflation to ease as the impact from past declines in oil prices fade. Similarly, core inflation is expected to remain under pressure, as the impact from the weaker currency will likely be temporary and there is some over capacity in the economy.
Overall, the statement is very similar to the one in January, but the tone is slightly more positive, with the BoC acknowledging the improvement in non-energy exports. Moreover, today’s decision continues to suggest that the BoC is patiently awaiting the announcement of the fiscal stimulus.
As such, the BoC said that it has yet to incorporate the impact of the fiscal stimulus in its economic projection. Because of the Governor’s comments at the press conference in January, we think the BoC believes that the size of the fiscal package will be big enough to allow the central bank to remain on the sidelines. As such, we believe the BoC will remain on hold for the rest of the year.”
(Market News Provided by FXstreet)