Canada’s central bank maintains overnight rate target at 0.5%

The Bank of Canada Wednesday announced that it will maintain its target for the overnight rate at 0.5 percent. (Photo by Ancien et moderne (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)])

The Canada’s central bank said that inflation is broadly in line with the projection in its April Monetary Policy Report. Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower.

The bank’s three measures of core inflation remain below two per ent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.

The global economy continues to gain traction and recent developments reinforce the bank’s view that growth will gradually strengthen and broaden over the projection horizon.

The bank said the economic growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter. The uncertainties outlined in the April Monetary Policy Report continue to cloud the global and Canadian outlooks.

It pointed out that the Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions.

However, export growth remains subdued, as anticipated in the April Monetary Policy Report, in the face of ongoing competitiveness challenges.

All things considered, bank judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 0.5 percent.