Bank of Canada stays neutral, frets over household debt

Wed Sep 3, 2014 12:09pm EDT
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By Randall Palmer and David Ljunggren

OTTAWA (Reuters) - The Bank of Canada reiterated its explicitly neutral stance and kept its overnight interest rate at 1 percent on Wednesday, while highlighting its concern about the overstretched household sector, in remarks that helped boost the Canadian dollar.

"Overall, the risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished," it stated.

The central bank dropped previous references to the constructive evolution of household imbalances and to a soft landing for the housing market and said "activity in the housing market has been stronger than anticipated."

And it eliminated its previous expression of "serial disappointment" on global growth, highlighting a solid recovery in the United States and stronger Canadian exports.

Royal Bank of Canada chief economist Craig Wright said the statement was largely unchanged from July, but he did say that at the margins the remarks on housing and household debt "might be interpreted as a little more hawkish."

The Canadian dollar rose to C$1.0873 to the greenback, or 91.97 U.S. cents, by 11:48 a.m. EDT (1548 GMT), from C$1.0913, 91.63 U.S. cents, before the statement. [CAD/]

"Overall I'd say the sense is that the bank sounds perhaps a little less downbeat than in July," said Bank of Montreal chief economist Doug Porter.

The central bank was sanguine about inflation, which peaked at a 28-month high of 2.4 percent in June, saying recent data reinforced the view that higher inflation had been attributable to temporary effects "rather than to any change in domestic economic fundamentals."   Continued...

Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa January 19, 2011.       REUTERS/Chris Wattie