On April 12, 2017, the Bank of Canada announced its policy to maintain the overnight interest rate target at a steady 0.5 percent. There are many positive factors that suggest an increase in interest rates but with the considerable uncertainty, specifically with the US economic policy, the future outlook is clouded.
Recent data indicates a stronger global economic growth than was predicted in the January MPR. There was a temporary growth in the Canadian economy due to an increase in spending in the oil and gas sector and strong residential investment. Export growth has been uneven due to ongoing competitiveness challenges. CPI inflation is now at the 2 percent target mainly because of the increase in oil and carbon prices in two provinces.
Despite the positive outlook, the Bank’s usual three measures of core inflation have indicated downward growth. The Bank’s Governing Council acknowledges the positive data but is mindful that some are temporary and the significant uncertainties about the future.
Due to the Bank of Canada’s choice to remain at a steady interest rate coupled with the Federal Reserve’s continuous increase in the rate, the Canadian dollar is forecasted to weaken in the coming months. David Doyle, a North American economist at Macquarie Capital Markets Ltd., predicts that the Canadian dollar will weaken to C$1.53 by the end of the year, the most bearish forecast of all analysts surveyed by Bloomberg.