Bank of Canada keeps key policy rate unchanged at 1 pct

The Bank of Canada kept its key policy rate on hold today at 1 percent, as widely expected, with the accompanying statement striking a dovish tone. The economic backdrop seems to be evolving consistent with the central bank’s expectations at the time of the October Monetary Policy Report, although ‘considerable uncertainty’ continues to cloud the global outlook.

Canada’s economy is also seen as falling in line with their expectations, with robust employment growth noted, and strong consumer spending, ongoing contributions from business investment, noted TD Economics in a research report. Even if exports disappointed in the September quarter, the central bank noted that the recent trade data underpins the view that exports are expected to add to the growth going forward.

Meanwhile, slightly above expected price pressures are seen as being helped by temporary factors; however, core inflation has also risen in line with ‘continued absorption of economic slack’. The central bank continues to see “ongoing –albeit diminishing – slack in the labor market”, while noting that employment continues to grow along with participation rates.

The statement was slightly dovish. It was noted that higher rates would possibly be needed over time, but the Governing Council would be ‘cautious, guided by incoming data”, indicating towards the key areas of the Bank’s focus in recent quarters, stated TD Economics.

“With economic growth appearing likely to exceed the Bank's 2.5% expectation for the fourth quarter of this year, things continue to point to a hike sooner rather than later. However, as today's statement shows, nothing is a done deal until the day of the decision”, added TD Economics.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bearish at -81.3672, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 47.7995. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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