The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that growth in the economy is improving and recent higher CPI inflation should be only temporary, reflecting increased energy costs. The Bank stated that it is remaining attentive to significant uncertainties weighing on its outlook.
While the Canadian economy is showing signs of improving, with strong hiring and faster than expected growth in real GDP, the outlook remains clouded by uncertainty over trade and tax policy in the United States. If economic growth and inflation evolve as the Bank currently projects, the Bank would likely be contemplating raising its overnight rate some time in early 2018. However, given that we have no more clarity now than at the time of the Bank's previous rate decision regarding changes to trade agreements or the stance of US fiscal policy, the Bank will remain sidelined until the path forward becomes more clear.
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