BoC holds rates, notes ‘material excess capacity’

The BoC pointed to “material excess capacity” in the economy as it held its benchmark lending rate at 0.5%.

January’s higher inflation reading of 2.1% reflected the impacts of provincial carbon pricing measures, the BoC said in a statement, adding that it expects this upward pressure on energy prices to be temporary.

“Don’t talk to the Bank of Canada about rate hikes,” CIBC economist Nick Exarhos said in a note. “[I]t’s more of the same of the BoC, and we continue to see them as on hold until next year.”

Read: A rate cut is on the table

The bank said its measures of core inflation “continue to point to material excess capacity in the economy” as it noted “competitiveness challenges” for Canadian exports. Without referring directly to Donald Trump or U.S. trade policy, the bank said it was “attentive to the impact of significant uncertainties weighing on the outlook.”

The BoC added: “While there have been recent gains in employment, subdued growth in wages and hours worked continue to reflect persistent economic slack in Canada, in contrast to the United States.”

Read: Two-time BoC challenge winners share rate outlook

TD economist Brian DePratto called the statement dovish, with the bank leaning more towards easing than tightening. “[T]he level of the loonie and movements in bond yields are not seen as helpful given the economic slack still remaining in Canada,” DePratto said.

Also read:

Canadian inflation fuelled by gas prices

Staff

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