Keeping Key Rate Unchanged Bank of Canada Highlights Upcoming Risks

This article was last updated on April 16, 2022

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In an announcement made by The Bank of Canada on Wednesday, it indicated that it is being more watchful of weak inflation now than it was three months ago. It was specifically mentioned that its next move on rates will most probably an increase or a decrease, depending on how the data unfolds. However, the bank most expectedly held main overnight interest rate unchanged at 1.0 percent.

Meanwhile, it was acknowledged that a more inflexibly stable U.S. recovery and the weaker Canadian dollar is anticipated to lift up exports this year. However, its guidance on monetary policy was incrementally more dovish. In its official statement, the bank mentioned that “although the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time and therefore the downside risks to inflation have grown in importance.” Highlighting the possibility of easing for the first time in recent statements, it was added that “the timing and direction of the next change to the policy rate will depend on how the new information influences the balance of risks.”

Bank of Canada’s Governor, Stephen Poloz, revealed in a news conference earlier that the bank’s stance was neutral, implying that there were equal chances of rates falling or rising, however, such language was not admitted to the bank’s official rate statement until now. Quite noticeably, the bank also removed a phrase previously used in last two rate announcements, saying that “the substantial monetary policy stimulus currently in place remains appropriate.”

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