BOC monetary policy decision: Assessing the bias

Bank of Canada (BOC) as expected  kept interest rates on hold, however, the Canadian dollar remained weak as the economy, the housing sector and oil price remain weak.

But how the bank is planning for future?

Let’s assess the bias in the monetary policy statement.

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

• BOC acknowledges that global economic growth was weaker than projected but expects it to strengthen in the second half of the year. Growth in U.S. has been weak in the second quarter due to investments but labor markets and consumption should be supportive. The bank sees that the monetary policy has become more accommodative. (Dovish bias)
   
• BOC expects a rebound in the second half, despite the fact that economy shrank in the second quarter, which the bank associated with weakness in the US economy and wildfire in Alberta, which led to lower oil production. The bank expects as the federal infrastructure spending kicks in, along with child benefit payments the growth is likely to be above projection. (Mild hawkish bias)
   
• Inflation in line with expectations. Any weakness is due to lower energy prices. (Neutral bias)
   
• The central bank feels that the risks to the inflation have tilted the downside since the last meeting and financial vulnerabilities associated with household imbalances remain elevated (Mild dovish bias)

With monetary policy wordings, turning more dovish we expect the Bank of Canada to cut rates further over the next six months. The Canadian dollar is currently trading at 1.292 against the dollar.