Economic Update from the Canadian Chamber of ...

October 17, 2006

17 October 2006

Economic Update from the Canadian Chamber of Commerce

As was expected, the Bank of Canada this morning kept the target for the overnight rate at 4.25% for the third consecutive meeting. In keeping the rate steady, Canada's central bank stated that total CPI inflation remains above 2%, domestic demand continues to grow at a robust pace, but GDP growth over the second and third quarters of 2006 has been weaker than expected due to weaker net exports. The Bank judges that the Canadian economy continues to operate just above its production capacity.

Looking ahead, a weaker short-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth.

Moreover, labour productivity growth has also been somewhat lower than expected. As a result, the Bank of Canada has revised its projection for economic growth in Canada to 2.8% this year, 2.5% in 2007, and 2.8% in 2008. Consistent with these projections, the Bank expects core inflation to move slightly above 2% in coming months and to return to 2% by the middle of 2007. The Bank believes that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term.

The Bank judges the risks around its base-case projection to be a little greater than they were back in July. The main downside risk is that the U.S. economy could slow more sharply than expected, leading to lower Canadian exports. The main upside risk relates to the momentum in household spending and housing prices. It is the Bank's judgment that, overall, risks around the inflation projection are roughly balanced.

The Bank of Canada's next scheduled date for announcing the overnight rate target is December 5, 2006.


Topic(s): 
Canadian Economy & Politics
Information Source: 
Canadian News Channel
Document Type: 
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