Bank of Canada renews 2% inflation target agreement

Posted on October 24, 2016

No surprises here. The Bank of Canada on Monday renewed its 2 per cent inflation target agreement.

The agreement, first signed with the government in 1991, is renewed every five years.

The BoC’s decision to renew the target comes as negative interest rates in Japan and Europe – and near zero rates in other developed economies like the US – has put the 2 per cent target under scrutiny.

At its last meeting, Canada’s central bank opted to leave its interest rate unchanged at 0.4 per cent but cut its consumer price inflation forecasts for this year and the next. The BoC now expects inflation of 1.5 per cent this year, down from its prior estimate for 1.9 per cent and 1.6 per cent in 2017, from 2 per cent previously.

Moreover, muted housing activity and exports also prompted the BoC to axe its growth forecasts. GDP is expected to climb 1.1 per cent in 2016 and 2 per cent next year, compared to its previous forecasts for 1.3 per cent and 2.2 per cent growth.

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