Posted on Tuesday, 12th April 2011 by Charlotte W
As expected the Boc left its policy rate unchanged at 1% this morning. Furthermore the Bank of Canada revised up its real GDP projection from 2.4% to 2.9% for 2011 and downgraded slightly the outlook for 2012 from 2.8% to 2.6%. This is now pretty close to our own forecast of 3% in 2011 and 2.6% in 2012.
At the global level, the Bank’s perception of the balance of risks has changed materially. The Bank seems to have been surprised by the strength of Europe despite ongoing sovereign debt and banking challenges. Unlike the Fed, the Bank expressed its view about the potential impact of the Japanese disaster. It sees short term disruptions to supply chains that would affect activity in the first half of the year. By removing the emphasis on fiscal and monetary support to economic growth, the Bank sent the message that it sees the U.S. economy on a more self sustained growth path.
Turning to emerging economies, the Bank not only echoed Mr. Carney’s recent speech about the supercycle in commodity prices, but also pointed out that persistent excess demand conditions in that part of the world are now contributing to the emergence of broader inflationary pressures.
In Canada, the mix of growth has been consistent with the January MPR but growth has clearly been stronger than anticipated by the BoC. This led the Bank of Canada to review its growth pattern for 2011-12. Instead of accelerating over the horizon forecast, the economy is now projected to register a stronger growth in 2011 and a weaker one in 2012. As a result, the level of activity is now expected to reach its full production capacity by mid-2012, two quarters earlier than in the January MPR.
On the inflation front, Mr. Carney sees only a transitory effect on headline inflation stemming from the current run-up in energy prices and the current low rate in core inflation is expected to rise gradually to 2% by the middle of 2012.
owever, according to the Bank, the high flying Canadian dollar could create some downward pressure on inflation through import prices.
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Tags: Rate, Rate Hike
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