Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 14:00 GMT.
Current policy measures–
- BOC is maintaining overnight deposit rate at 0.5%
Core objective of BOC monetary policy is price stability which means keeping inflation within range of 1-3%. Headline inflation has fallen close to 1% from 2.5% in 2014 in October last year. Since then it has risen sharply to 2% in January. In February reading came at 1.4%. In April it reached 1.7%. Has been showing lot of volatility lately.
Economy at a glance–
- Canada is very small economy of $1.78 trillion approximately, compared to its larger neighbor United States.
- Canada suffered technical recession last year as GDP contracted in both first and second quarter. As of December, annual GDP growth rate has dropped to 0.5% from 3.1% a year ago.
- GDP growth now stands at 0.8% annualized.
- Recent recovery in oil price may not be much of a boost, since severe wildfire has taken large portion of the production (more than 1.5 million barrels/day) offline.
- Unemployment ticked up recently to 7.3%, compared to pre-crisis level of 6%. However, recently it dropped to 7.1%.
Return of growth in US is expected to help Canadian economy as a whole.
What to watch out for –
BOC is expected to keep policy on hold today. Focus will be on what the bank’s take on recent appreciation in exchange rate and take on the wildfire. However Canadian Dollar has weakened as much as 600 pips from its recent high over the wildfire and stronger Dollar.
At least another rate cut is expected in 2016 from BOC if situation worsened in oil front.
Some changes in communication would be vital to watch for –
- Changes in inflation expectation ahead. Higher or stable expectation would indicate a longer rate pause by the bank.
- Take on the wildfire.
- Outlook for oil price and impact on the economy.
- Changes in growth forecast ahead and views on ailing manufacturing.
- Recent volatility in inflation rate.
Impact –
We expect Canadian Dollar to weaken in the short run to as much as 1.4 against Dollar but strengthen in medium to longer term to as high as 1.18 per Dollar.
The material has been provided by InstaForex Company – www.instaforex.com