Category: Economic

The Bank of Canada is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR). Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.

The global economy continues to gain traction and recent developments reinforce the Bank’s view that growth will gradually strengthen and broaden over the projection horizon. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter.  The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.

The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.

All things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent.

Information note:

The next scheduled date for announcing the overnight rate target is 12 July 2017. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.  

Canada and Mexico share economic traits that leave both well placed to face global challenges and capitalize on opportunities, Bank of Canada Governor Stephen S. Poloz said today.

In a speech to CanCham México and the Club de Industriales, Governor Poloz showed how the similarities between Canada and Mexico—including their shared approach to monetary policy and the importance of industries such as oil and automobiles—have meant that global disruptions have hit the two economies in a similar way.

The plunge in oil prices that began in the second half of 2014 led to a major loss of income for both countries, the Governor noted. However, sound economic policies helped both adapt. “There is no doubt that the predictability and certainty that come from inflation targeting helped Canada’s economy respond as quickly as it has,” Governor Poloz said. “Mexico’s inflation-targeting framework helped make its economy relatively resilient to the shock as well.”

Canada and Mexico now face the common challenge of dealing with uncertainty in future US trade policy, particularly given the importance of that market to both economies. “This uncertainty has real consequences for companies,” Governor Poloz said. “When you consider that the painful memories of the global financial crisis are still fresh, it is not surprising that companies would continue to hesitate to expand.”

The Governor called on business and labour leaders to help policy-makers combat uncertainty by showing how open trade and economic integration have supported job creation across North America. “We know that with protectionism, everybody loses eventually, including the country that puts the policies in place,” Governor Poloz said. “And the uncertainty around this threat of increased protectionism is holding back growth.”

Governor Poloz also pointed to a number of ways that both countries can support growth and employment. These include pursuing free trade agreements outside North America—an area where Mexico has a significant head start over Canada—and domestic structural improvements. “Beyond pushing for open markets, governments can pursue structural policies that allow our economies to be as flexible as possible,” he said.

“We have faced obstacles before, and have overcome them,” Governor Poloz concluded. “Canada and Mexico’s shared commitment to open trade means both of our countries are well placed to thrive, whatever the international environment.”

Automation, artificial intelligence and other innovations will benefit the Canadian economy by boosting productivity and living standards, but they could also have less desirable side effects on the labour market and income distribution that will have to be managed, Bank of Canada Senior Deputy Governor Carolyn A. Wilkins said today.

“Canada is well positioned to succeed in a digital world,” Senior Deputy Governor Wilkins said in a speech to the Toronto Region Board of Trade. “If we seek out and embrace new technologies while successfully managing their harmful side effects, we will create inclusive prosperity.”

While Canada’s productivity growth has been slowing since the turn of the millennium, new technologies could help turn the tide and boost Canadians’ incomes, Senior Deputy Governor Wilkins said. Some worry that automation will make many workers obsolete, but modern history shows that new jobs are created in place of old ones.

However, technological innovations can lead to a difficult transition period by changing the types of workers that will be in demand and they can lead to greater income inequality.  

“As with previous technological transitions, education, skills training and continuous learning will be key,” Senior Deputy Governor Wilkins said, adding that it will also be important to resist protectionism, because openness to trade is a great driver of productivity growth.

The Bank, for its part, will continue to provide a stable economic environment that fosters productivity-enhancing investments in both physical and human capital, Senior Deputy Governor Wilkins said.

“The Bank of Canada’s monetary policy accomplishes a simple, yet vital, task: it manages the level of demand over the business cycle in order to meet our inflation target,” Senior Deputy Governor Wilkins said. “This is the perfect complement to the structural policies that governments at all levels in Canada are working to strengthen.”

The Bank of Canada is pleased to announce that Professor Francisco Ruge-Murcia from McGill University is the 2017 recipient of the Bank’s Fellowship Award.

Professor Ruge-Murcia is a renowned scholar in the fields of monetary economics and macroeconomics. His current research focuses on the implications of extreme events for monetary policy and financial markets, as well as on central bank decision making and communication.

“I am pleased to recognize, through this year’s Fellowship Award, Professor Ruge-Murcia’s remarkable capacity for bringing state-of-the-art research methods to bear on topics of direct interest to the Bank,” said Governor Stephen S. Poloz. “His record of academic excellence is remarkable, and I look forward to his continued high-quality and innovative work in the years ahead.”

The Bank is also pleased to present this year’s Governor’s Award to Assistant Professor Mikhail Simutin from the Rotman School of Management at the University of Toronto.

Professor Simutin is a leading academic whose work in financial economics has been published by top-ranked journals. His research interests include empirical asset pricing, mutual funds and risk and performance measurement.

“The Bank is proud to support Professor Simutin, whose ability to combine theoretical models with robust empirical analysis is already widely regarded throughout the academic, policy and practitioner communities,” said Governor Poloz. “His research at the intersection of asset pricing and financial intermediation is also particularly relevant to our mandate of promoting a sound financial system.”

Notes to Editors:

1. The Fellowship Award provides financial support to leading academics who are widely recognized for their expertise and excellence in areas important to the Bank’s core functions, and whose research contributes to the development of knowledge and research capabilities in those areas. The Fellowship Award provides annual funding of up to $90,000 for a term of up to five years, and recipients are professors in tenure or tenure-track positions at Canadian universities.
2. The Governor’s Award recognizes outstanding academics at a relatively early stage in their careers, who are working at Canadian universities in areas of research important to the Bank’s core functions. The award provides annual funding of $25,000 for a term of up to two years to academics who have obtained a PhD within the past 10 years.
3. The application deadline for the 2018 Fellowship and Governor’s awards is in November 2017. For more information on the Bank’s Fellowship Program, please visit our website or email Fellowship.