“Total CPI inflation has moved up to around the 2 per cent target, sooner than anticipated in the Bank’s April Monetary Policy Report (MPR), largely due to the temporary effects of higher energy prices and exchange rate pass-through,” an official release from the Bank of Canada states. “Core inflation remains significantly below 2 per cent although it has drifted up slightly, partly owing to past exchange rate movements.”
The overnight rate target has held steady at one per cent since September 2010.
The BoC is still forecasting a soft landing; a view that is shared among many economists across the country.
“There are continued signs of a soft landing in the housing market and a constructive evolution of household imbalances,” the release states. “We still expect excess supply to be absorbed gradually as the fundamental drivers of growth and inflation in Canada strengthen.”
Still, inflation will continue to be closely monitored along with the risk of increased household imbalances.
“Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before,” the release states. “At the same time, the risks associated with household imbalances remain elevated.
“The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent.”
The Bank of Canada announced Wednesday it will hold its target for the overnight rate at one per cent, citing an inflation rate that remains below two per cent.