While we expected the sharp decline in oil prices and the uncertainty regarding when they might stabilize would keep the Bank of Canada from raising interest rates in 2015, the Bank has instead opted for a more aggressive approach. How long the Bank intends to keep its overnight rate at 0.75 per cent is unclear, but given strong underlying growth...
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Bank of Canada Interest Rate Decision - January 21, 2015
In a bombshell announcement this morning, the Bank of Canada announced that it is lowering its target overnight rate to 0.75 per cent. The surprise loosening of monetary policy is in response to the recent dramatic decline in oil prices and the consequent negative impact on Canadian growth and inflation. The Bank expects the Canadian economy to grow 2.1 per cent in 2015 and 2.4 per cent in 2016. Given the initial drag on growth from lower oil prices, it does not expect the Canadian output gap (the difference between actual GDP and GDP at full capacity) to close until the end of 2016.