In his last statement before stepping down from the head post at the Bank of Canada (BOC), Mark Carney didn’t leave us with any rim-rocking news, as the central bank kept rates steady at 1.00%. This was well in line with what the markets were pricing it, and marks the 22nd consecutive time that the BOC has kept rates steady.
I suppose that we shouldn’t be surprised that Carney decided to avoid any theatrics, as this now provides incoming governor Stephen Poloz a blank canvas to work with. For all we know, Poloz will start his reign with a major surprise during his first interest rate decision!
Take note though, that Carney once again mentioned that the BOC would have to tighten policy eventually, as the economic recovery gains momentum.
As you can see from the chart above, there was no strong immediate reaction to the report, as it basically came in line with expectations.
We did see though, that the Canadian dollar rallied later in the day, but this was probably due to Carney’s quips about tightening, as well as overall U.S. dollar weakness.
The State of the Global Economy
According to the BOC, global economic expansion is pretty much in line with its expectations. In the U.S., for instance, the consumer sector is progressing and economic growth is improving. However, the central bank did indicate that the pace was “modest.”
The BOC also showed support for Japan’s aggressive monetary policy. The central bank said that Japan was actually a “bright spot” in the global economy. In contrast, the BOC cited that Europe remains in contraction mode as it leaders continue to implement harsh austerity programs.
As for its own economy, the BOC stated that growth has been much better in Q1 2013 than it had initially anticipated. The only downside is that inflation has been weaker than expected, hinting that there is no urgency to hike borrowing costs.
For the coming quarters, the central bank expects growth to be in line with its forecast. For example, consumer demand is projected to increase, but only at a modest pace. Business spending, however, will likely improve “solidly.”
From the tone of the statement, the BOC is seems to be set on keeping the status quo, with a very slight bias on tightening. I think it’s reasonable to say that rates will remain at 1.00% for a considerable amount of time, even after the incoming BOC governor Stephen Poloz takes over.