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Bank of Canada Interest Rate Announcement: October 23, 2013

In his third interest rate announcement as Governor of the Bank of Canada, Stephen Poloz announced this morning that the overnight lending rate would continue at 1.00 per cent – a position it’s stayed in since September 2010. Poloz also discussed his second monetary policy report.

Since 1991, the objective of monetary policy has been simple: to achieve a pre-announced target rate of inflation. To set this target, Council examines economic projections, analyzes monetary and credit aggregates, looks at current interest rates, debt levels and any changes in access to credit, as well as information on the interest rate expectations in other financial markets. After analyzing the data, the Governing Council has to decide how to integrate it into a new monetary policy report.

The key to a successful monetary policy is to look ahead to the likely outcome and react appropriately, so inflation is either kept on target or brought to target over a year or two. Since 1995, the Bank of Canada has kept the target rate of inflation at 2.00 per cent. Currently, Canada’s rate of inflation sits at 1.1 per cent, as economic growth is modest in Canada and around the world. As a result, the Bank of Canada has downgraded its growth forecasts.

The Bank has shaved growth projection in 2013 by two-tenths of a point, from 1.8 per cent to 1.6 per cent, by four-tenths down to 2.3 per cent in 2014 and by one-tenth down to 2.6 per cent in 2015 – numbers it had originally projected just three months ago, in July. Poloz addressed that, “the Bank expects the economy will return gradually to full production capacity, around the end of 2015.”

“In Canada, uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting. With larger and more persistent excess supply in the economy, both total CPI and core inflation are expected to return more gradually to 2 per cent, around the end of 2015.”

The next interest rate announcement is scheduled for December 4, 2013.

Source: Bank of Canada Press Release – October 23, 2013