OTTAWA—The Bank of Canada believes the Canadian economy is evolving in line with its April projections and as such, and to nobody’s surprise, the central bank kept rates unchanged. The overnight target rate was held at 0.75 percent on Wednesday, May 27.
With respect to inflation, the Bank’s statement reiterated what governor Stephen Poloz said in a speech in Charlottetown, PEI on May 19. The message is that there is still slack in the economy and, as a result, the Bank estimates that the underlying inflation trend is 1.6 to 1.8 percent, slightly below the 2 percent target.
The Bank said in April that it feels it'll take until the end of 2016 for the economy to reach full capacity and for inflation to be close to 2 percent on a sustained basis.
The BoC acknowledged the back-up in bond yields which, all else being equal, implies a tightening of financial conditions, however, in the grand scheme of things, rates are still near historic lows. The 10-year bond yield has moved higher by roughly 0.35 percent since the April MPR.
