19 July 2011
The previous announcement said “eventually withdrawn.”
• “Total CPI inflation isn’t expected to fall below 3% in the nearest future”.
• “Core inflation turned out to be a bit firmer than anticipated”.
• “Core inflation is expected to stay about 2% in the near term”
• Current “high” commodity prices and “excess demand in emerging-market economies can lead to even stronger global inflationary pressures”.
• “The Canadian household spending is still solid and business investment remain quite robust”.
• “The Canadian financial conditions remain very stimulative”.
• “The Bank expects economic growth in Canada to accelerate again in the second half of 2011”.
• Canada’s economy will finally normalize “in the middle of 2012″.
• “European debt crisis can affect the Canadian economy”.
In spite of today’s inflation level and growing employment in Canada, there are still certain risks for the national economy, such as strong loonie and European debt concerns. That’s why many economists believe there won’t be any rate hikes until late 2011, or even the first half of 2012.
Meanwhile, Citigroup Capital Markets expect another scenario.
In a recent report, Citi analyst Todd Elmer predicts the BoC will double its key lending rate to 2.00% by the end of the first quarter in 2012. In his opinion, the majority of economists pays too much attention to external factors and seriously underestimates Canada’s strong economic performance.
Nevertheless, the financial market doesn’t agree with such statements and relies more on the overnight index swaps (OIS). According to yesterday’s OIS data, the probability of 0,25% rate hike until May 2012 was really small. But after today’s central bank announcement some analytics may change their minds.
There are three BoC rate meetings left in 2011. The next interest rate decision will be on Sept. 7.