This text is a commentary of the Governing Council of the Bank
- Inflation has moved further below the 2% target and its path
is now expected to be lower than previously projected. Inflation is
expected to return to the 2% target in about two years.
- Global economic growth is expected to strengthen over the next
two years, led by stronger momentum in the United States.
- In Canada, growth improved in the second half of 2013,
although there have been few signs of the anticipated rebalancing
towards exports and business investment.
- The Bank projects that the Canadian economy grew by 1.8% in
2013, and will grow by 2.5% cent in both 2014 and 2015, gradually
returning to full production capacity over the next two years.
"Inflation in Canada has moved further below the 2% target,
owing largely to significant excess supply in the economy and
heightened competition in the retail sector. The path for inflation
is now expected to be lower than previously anticipated for most of
the projection period. The Bank expects inflation to return to the
2% target in about two years, as the
effects of retail competition dissipate and excess capacity is
"Global growth is expected to strengthen over the next two
years, rising from 2.9% in 2013 to 3.4% in 2014 and 3.7% in 2015.
The United States will lead this acceleration, aided by diminishing
fiscal drag, accommodative monetary policy and stronger household
balance sheets. The improving U.S. outlook is affecting global
bond, equity, and currency markets. Growth in other regions is
evolving largely as projected in October. Global trade growth
plunged after 2011, but is poised to recover as global demand
"In Canada, growth improved in the second half of 2013. However,
there have been few signs of the anticipated rebalancing towards
exports and business investment. Stronger U.S. demand, as well as
the recent depreciation of the Canadian dollar, should help to
boost exports and, in turn, business confidence and investment.
Meanwhile, recent data have been consistent with the
Bank's expectation of a soft landing in the housing market and a
stabilization of household indebtedness relative to income.
"Real GDP growth is projected to pick up from 1.8% in 2013 to
2.5% in both 2014
and 2015. This implies that the economy will return gradually to
capacity over the next two years.
"The outlook for inflation is subject to several risks emanating
from both the external environment and the domestic economy. The
most important risks are stronger U.S. investment, underperformance
in Canadian exports, and imbalances in the household sector.
Overall, the Bank judges that the risks to the projection for
inflation are roughly balanced.
"Although the fundamental drivers of growth and future inflation
appear to be strengthening, inflation is expected to remain well
below target for some time, and therefore the downside risks to
inflation have grown in importance. At the same time, risks
associated with elevated household imbalances have not materially
changed. Weighing these considerations, the Bank judges that the
balance of risks remains within the zone articulated in October,
has decided to maintain the target for the overnight rate at 1%.
The timing and direction of the next change to the policy rate will
depend on how new information influences this balance of
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