‘One key indicator of progress will continue to be wage inflation, which has shown signs of pickup recently.’ — Stephen Poloz, Bank of Canada
At the latest policy meeting, the Bank of Canada decided to raise its overnight rate target by 0.25% to 0.75% for the first time since 2010, satisfying economists’ expectations. In light of a shift in rhetoric from the central bank, which turned to be a lot more hawkish over the prior month, and generally more optimistic economic data, policymakers judged that a rate increase was appropriate at this point in time. The BoC’s statement revealed that a substantial amount of economic slack ‘has been absorbed’, while the output gap is set to narrow significantly by the end of the year, as opposed to the previous estimates for the output gap to close in the H1 of 2018. Moreover, the GDP outlook for 2018 has brightened up, as the BoC revised upwards its growth forecast to 2.0% from 1.9%, with exports set to make a larger contribution to the GDP over the observed period. Apart from that, despite inflation still remaining below the target, the BoC said it could be caused by temporary factors, which makes the central bank sure inflation rate is capable of meeting the target by the end of H1 of 2018.
