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Bank of Canada Holds Rates, Downside Inflation Risks Noted

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Notable Points:

-BoC keeps rates on hold at 1.00%

-Downside risks to Canadian inflation have growth more important

-2014 GDP growth prospects upped from 2.3% to 2.5%

-2015 GDP growth prospects lowered from 2.6% to 2.5%

-Average 0.9% inflation level in Q1 is expected

-Canadian economy to reach capacity in about two years from now

-Competition in the retail market is pushing down inflation

-CAD weakness should support exports

-CAD still strong despite recent depreciation

-BoC lifts U.S. 2014 growth prospects from 2.5% to 3.0%

The Bank of Canada kept rates on hold Wednesday as expected at 1.00% while raising growth prospects for 2014 and lowering those slightly for 2015. Once again, the central bank stated that policy moving forward is dependent on incoming data and that downside inflation risks have grown more important.

The YoY NSA CPI print for November slightly missed the 1.0% survey consensus, instead coming in at 0.9% and weakening the Canadian Dollar in December. The Consumer Price Index for the month of December is expected to come in at -0.2% MoM NSA and a highly disappointing print of -0.4% MoM for the core reading. With energy prices having come off the November lows, a beat here could lend some much needed support for the Canadian Dollar, although key technical levels continue to be broken.

USD/CAD continues to press fresh intraday and multi-year highs at the time of this report. Note upcoming event risk with Gov. Poloz’s presser at 16:15GMT and Canadian CPI on Friday.

Bank_of_Canada_Holds_Rates_Downside_Inflation_Risks_Noted_body_Picture_1.png, Bank of Canada Holds Rates, Downside Inflation Risks Noted

Gregory Marks, DailyFX Research Team

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