Bank of Canada Releases Monetary Policy Report for July

Mark Carney gave further indications that a rate hike is in the near future during remarks made during the Monetary Policy Report, released on Wednesday.

Carney lent credence to the speculation from many after Tuesday’s interest rate announcement that while rates are holding steady right now- the end may visibly be in sight this time around.
His remarks had thematic thread of someone setting the stage for a decision- essentially laying groundwork with rationale.

He acknowledged the existence of economic risks-both domestically and abroad, but suggested that risk is a relative term. That is to say, risk exists- particularly in Europe, but most likely will be managed. Worst Case Scenario is getting more manageable, in other words:

Carney said: “Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets. The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.”

Carney too acknowledges the restraint shown in American economic growth, and includes that in his overall plan.

For the most part, though, Carney paints a picture of a robust Canadian economy, with its’ legs firmly back under it, ready to move to the next level.

He even feels that inflation is within target- although recent numbers from Stats Can suggest that inflation had gone up- way up.  Carney believes that this is a blip on the trend line- and that inflation is actually close to target.

“In the near term, total CPI inflation is expected to remain above 3 per cent, largely reflecting temporary factors such as significantly higher food and energy prices. It is expected to return to the 2 per cent target by the middle of 2012 as the temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.”

He expects consumer spending to increase as well, and predicts that the economy will continue to expand at a comfortable rate.

“Following an anticipated slowdown in growth during the second quarter due to temporary supply chain disruptions and the impact of higher energy prices on consumption, the Bank expects growth in Canada to re-accelerate in the second half of 2011.”

“Over the projection horizon, business investment is expected to remain strong, household spending to grow more in line with disposable income, and net exports to become more supportive of growth.”

So, it seems, all signs are pointing up for the Canadian economy- and we will have to wait and see rates are pointing up as well.

Thursday, 21 July 2011 Newsroom Property Wire Canada