BOC monetary policy decision: Assessing the bias

Bank of Canada (BOC) as expected by all economists surveyed by Bloomberg, kept interest rates on hold, which provided some boost to Canadian Dollar, which got further push from broad based weakness in Dollar. Canadian Dollar is currently trading at 1.295 per Dollar.

But how the bank is planning for future?

Let’s asses the bias in monetary policy statement.

BOC has maintained its overnight rate at 0.5%, Bank rate at 0.75% and deposit rate at 0.25%.

• BOC acknowledges that global economic conditions developing as expected. Growth in U.S. has been weak in first quarter but indicator points to recovery in the following. It associated Geo-political factors with fragile market sentiment and associated short-term supply disruption to be behind crude oil rally. (Neutral bias)

• According to BOC, Canadian economy is structurally adjusting to lower oil price but in uneven manner. First quarter growth has been in line with expectations but second quarter is expected to be weaker. BOC expects 1.25% toll on GDP due to that. (Mild dovish bias)

• Inflation in line with expectations. Associated recent rise to gasoline prices. Inflation projections balanced. (Neutral bias)

• It notes strong regional divergence in its housing market, also weak business investment. (Neutral bias)

With most of the wordings in the monetary policy pointing towards neutral we expect BOC to maintain its current policy for at least next two quarters unless sever shock hits economy.