Interest rates remain on hold as governor Mark Carney leaves the Bank of Canada

Data Release: Interest rates remain on hold as governor Mark Carney leaves the Bank of Canada

• As was widely expected, the Bank of Canada elected to hold the Overnight Rate target at 1.00%.
• The Bank noted that the recent progression of the Canadian economy was broadly in line with its expectations. Much of the communiqué was a reiteration of what has already been previously stated, save for a brief mention of first quarter growth likely being stronger than the Bank had projected in its last Monetary Policy Report and a slightly weaker-than-anticipated pace of headline inflation.
• Overall, economic growth in Canada is forecasted to progress at a moderate pace, residential investment is likely to decline further, and the household debt-to-income ratio is expected to stabilize near current levels. The bank continues to anticipate inflation to remain below the 2% target until the middle of 2015.

Key Implications

• Bank of Canada governor Mark Carney was widely expected to make few waves in his final interest rate announcement before the end of his tenure. This was certainly the case in today’s communiqué, especially given that the economy has largely progressed as the Bank forecasted in its April Monetary Policy Report.
• We do not expect a change in bias when incoming governor Stephen Poloz begins his tenure. Despite publicized concerns that his previous position as head of Export Development Canada may lead to an easing bias in favour of a weaker Canadian dollar, the Bank of Canada has never explicitly targeted the exchange rate and, in fact, is mandated to conduct monetary policy to achieve its 2% inflation target. We expect a continuation of this policy.
• Ultimately, with inflationary pressures remaining muted and the Canadian economy firmly entrenched in a moderate growth environment, TD Economics continues to anticipate the Bank of Canada to remain on hold until the end of 2014.

TD Economics