Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada policy statement was little changed from what we saw in December, with the factors shaping the recovery - "policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade" - largely unchanged. With its overall assessment of inflation risks pointing slighlty to the downside (though higher than expected in the short term), today's report does little to change the bank's assertion that it will wait till the second half of 2010 to raise interest rates. The bank sees considerable excess supply in the economy and weak demand from the US and a strong Canadian Dollar are acting as drags on growth. The language about the Canadian Dollar was consistent with its statement in December. 

The Bank of Canada is in its first stages of shifting its policy away from the ultra-low rate and emergency stimulus as the recovery continues to recover and growth projections were lifted slightly for 2010 and 2011. This puts extra emphasis on the next meeting on March 2nd where it may begin to prepare the ground for exiting its current loose monetary policy.

The USD/CAD had been rallying overnight and while it paused in its upswing following the BOC decision, as we mentioned the release did stick rather close to what we already knew. 

From the Release: "Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains, and the Bank judges that the economy was operating about 3 ¼ per cent below its production capacity in the fourth quarter of 2009... Canada's economic recovery is expected to evolve largely as anticipated in the October MPR, with the economy returning to full capacity and inflation to the 2 per cent target in the third quarter of 2011. The Bank projects that the economy will grow by 2.9 per cent in 2010 and 3.5 per cent in 2011, after contracting by 2.5 per cent in 2009...

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside."

For December
Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada held rates at 0.25%, matching expectations and its conditional commitment to keep rates at that level until the second half of 2010. The statement struck a neutral tone, saying that while there are still significant headwinds remaining, “global economic developments have been slightly more positive and the global outlook has improved modestly” relative to its October forecasts. The bank also softened its language regarding the impact of the stronger Canadian Dollar. In its October meeting, the bank said that the current strength of the Canadian Dollar could more than fully offset the favorable developments in the economy. In today’s statement, the bank said that the persistent strength of the Canadian Dollar could act as a significant drag on growth and put additional downward pressure on inflation.

Today’s trading has been characterized by greenback strength, and that was no different in the USD/CAD pair which rose more than 100 pips from its support prior to the release near the 1.0485 level to a high in mid-NY trading at 1.0615. That level came close to testing a downward sloping line of resistance.

From the Release: "In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR. "

Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada kept its benchmark overnight rate at 0.25% for a fifth consecutive time, and reaffirmed its commitment to keep it at that level until the middle of next year. The bank said that economic recovery is underway in Canada, supported by monetary and fiscal stimulus, increased household wealth, higher commodity prices and stronger business and consumer confidence. The strong Canadian Dollar however is pressuring the economy in the other direction, working to slow growth and keep inflation pressured down. The shift then will be a move towards final domestic demand and away from net exports. The bank now expects inflation to reach 2% in the third quarter of 2010, one quarter later than forecast in July. The economy meanwhile is expected to shrink 2.4% this  year, then grow 3% in 2010 and 3.35 in 2011.  

The announcement was more bearish about the economy and therefore more "dovish" in regards to interest rates. That caused the Loonie to weaken in today's trading, with the USD/CAD moving to test the 1.05 area in NY morning trading. 

Provided by: Bank of Canada
Official Statement: Press Release

From the Release: "Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target."

Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada gave a rather upbeat assessment of the economy, as several factors have begun to spur domestic demand. It was interpreted as a more hawkish outlook than expected and gave traders the belief that Canada is likely to raise interest rates earlier than the US. That helped push the Canadian Dollar stronger, extending its gains against the greenback from yesterday, putting the pair below the 1.10 level for the first time since June 6th.

From the Release: "The dynamics of the recovery in Canada remain broadly consistent with the Bank's medium-term outlook in its April Monetary Policy Report (MPR). Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth. However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.

Total CPI inflation declined to -0.3 per cent in June and should trough in the third quarter of this year before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance. Core inflation held up at 1.9 per cent in the second quarter of 2009. The Bank still expects core inflation to diminish in the second half of this year before gradually returning to 2 per cent in the second quarter of 2011. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside."

Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada left rates steady and did not mention quantitative easing in its policy statement. It did mention that the recent appreciation of the Loonie can have a negative impact on its recovery as that in essence tightens monetary conditions. That doesn't mean that the Bank will intervene in currency markets as it explained the appreciation was based on fundamental factors. If commodity prices increase it offsets some of the negative effects of the appreciation of the Canadian Dollar. The bank said that inflation pressures remain on the downside so it retains considerable flexibility in its policy. However it may take an additional shock for the bank to go ahead with quantitative easing.

From the Release: "In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors.

The outlook is subject to considerable uncertainty. While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR."

Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada cut interest rates by 25 basis points to bring interest rates to a fresh record low of 0.25%. The statement said that such an accommodative monetary stance will remain at that level until the end of the second quarter of next year. Growth is expected to slow 3% in 2009, a deterioration in the forecast from even three months ago when policy makers predicted a 1.2% decline in growth. Today's surprise decision should work to weaken the Loonie.

From the Release: "In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in all major economies. Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual. The economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011, and to reach its production capacity in the third quarter of 2011. Given significant restructuring in a number of sectors, potential growth has been revised down. The recovery will be importantly supported by the Bank's accommodative monetary stance...

To reinforce its conditional commitment to maintain the overnight rate at 1/4 per cent, the Bank will roll over a portion of its existing stock of one- and three-month term Purchase and Resale Agreements (PRAs) into six- and twelve-month terms at minimum and maximum bid rates that correspond to the target rate and the Bank Rate, respectively. These longer-term PRAs will be issued according to the schedule released today."

Provided by: Bank of Canada
Official Statement: Press Release

The Bank of Canada lowered interest rates by 50 basis points to a record low of 0.50% in response to an economy that is feeling the strain of recession. The global recession is hurting demand for Canada's autos, timber and other natural resources, and as oil prices fall, Canada is receiving less revenue there as a result. Canada's economy is shrinking as domestic demand falters in the face of tighter credit markets and concern over an increase in unemployment. The statement left the door open for more rate cuts, and said that the bank would take steps to provide addition monetary stimulus through credit and quantitative easing. The statement also said that a recovery depends on efforts by the US and other countries to fix financial markets and boost economic global growth.

From the Release: "The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1/2 per cent...

Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard...

The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.

The Bank's decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.

Given the low level of the target for the overnight rate, the Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing."

Provided by: Bank of Canada
Official Statement: Press Release

From the Release: "The outlook for the global economy has deteriorated since the Bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity. Heightened uncertainty is undermining business and household confidence worldwide and further eroding domestic demand. Major advanced economies, including Canada's, are now in recession and emerging-market economies are increasingly affected. Energy prices have fallen as a result of substantially weaker global demand.

Stabilization of the global financial system is a precondition for economic recovery. To that end, governments and central banks are taking bold and concerted policy actions. There are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize.

Canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and consumer and business confidence...

Against this background, the Bank today lowered its policy rate by 50 basis points, bringing the cumulative monetary policy easing to 350 basis points since December 2007."