Bank of Canada says inflation rise hasn't shaken neutral stance

Wed Apr 16, 2014 1:34pm EDT
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By Louise Egan and Leah Schnurr

OTTAWA (Reuters) - Canadian central bank chief Stephen Poloz said on Wednesday an interest rate cut is still a possibility even though the bank forecasts inflation will pick up speed this year and approach its 2 percent target.

The Bank of Canada held its benchmark interest rate at 1 percent, as expected, extending a 3-1/2 year freeze on borrowing costs.

Poloz described the bank's monetary policy stance as neutral, as it has been since last October, meaning there is just as much chance of a rate cut as of a hike.

Following the release of some stronger economic data recently, market players had been watching for any sign he would change his tone on inflation to be less dovish than he was in the bank's March and January rate statements.

But in its Wednesday statement, the bank repeated that "the downside risks to inflation remain important", although there are also risks associated with near record-high household debt.

"We are neutral. And that means that rate cuts cannot be taken off the table at this stage," Poloz told reporters.

"I would remind you that inflation today is almost exactly what is was in January, when we last put out an MPR (Monetary Policy Report)."

The bank said the timing and direction of its next rate move will depend on data.   Continued...