The Canadian dollar dropped on the announcement.
Key portion of the statement:
Although the Bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance. However, the Bank must also take into consideration the risk of exacerbating already-elevated household imbalances.
Previously said:
Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.
On October 1, the BOC’s Macklem said the Q3 growth estimate would be trimmed to 2-2.5% but it was trimmed even further, to 1.8%. Similarly his Q4 was forecast at 2.5% but the official forecast has been lowered further to 2.3%.
Other highlights:
- 2014 growth forecast cut to 2.3% from 2.7%
- 2015 growth cut to 2.6% from 2.7%
- Sees CPI hitting 2% target in Q4 2015 — six months later than previously
- Sees risk of making consumer debt levels worse
- US softer than expected and composition of global growth slightly less favorable for Canada than before
- If housing strengthens further it could lead to a correction later
Every part of this statement is dovish and even if the BOC hasn’t hinted at rate cuts, the market will begin to think about them. Poloz’s base case when he started was a US-led pickup in growth but they have clearly abandoned that idea.
