The Bank of Canada will maintain its target for the overnight rate at 1/2%.

“Inflation in Canada is evolving broadly as expected. Total CPI inflation remains near the bottom of the Bank’s target range as the disinflationary effects of economic slack and low consumer energy prices are only partially offset by the inflationary impact of the lower Canadian dollar on the prices of imported goods,” the Bank of Canada said in a release. “As all of these factors dissipate, the Bank expects inflation will rise to about 2 per cent by early 2017. Measures of core inflation should remain close to 2 per cent.”

The bank did acknowledge that commodities and oil prices continue to take a hit and negatively impact the economy. It suspects the economy stalled in Q4 2015. It also expects growth to be delayed.

“The Bank now expects the economy’s return to above-potential growth to be delayed until the second quarter of 2016,” the BoC said. “The protracted process of reorientation towards non-resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions.”

On a bright now, however, employment and household spending remains strong.
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“The Bank projects Canada’s economy will grow by about 1 1/2 per cent in 2016 and 2 1/2 per cent in 2017. The complex nature of the ongoing structural adjustment makes the outlook for demand and potential output highly uncertain,” the bank said. “The Bank’s current base case projection shows the output gap closing later than was anticipated in October, around the end of 2017. However, the Bank has not yet incorporated the positive impact of fiscal measures expected in the next federal budget.”

New down payment rules will go into effective February 15, 2016.

“The Government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable. The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions,” Finance Minister Bill Morneau said in a release. “They also rebalance government support for the housing sector to promote long-term stability and balanced economic growth.”

The minimum down payment for new insured mortgages will increase from 5% to 10% for the portion of the house price above $500,000, the finance ministry wrote.

Minimum down payment for properties up to $500,000 will remain at 5%.

The changes are meant to reduce taxpayer exposure while supporting long-term stability of the housing market, according to the ministry.

“This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term,” Morneau said. “It also protects all homeowners, including many middle class Canadians whose greatest investment is in their homes.”

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.

Global growth faltered in early 2015, principally in the United States and China.  Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.  Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.

The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Total CPI inflation is at 1 per cent, reflecting the drop in consumer energy prices. Core inflation has remained close to 2 per cent in recent months, as the temporary effects of sector-specific factors and pass-through of the lower Canadian dollar have offset the disinflationary forces from slack in the economy.

The Bank expects global growth to strengthen and average 3 1/2 per cent per year over 2015-17, in line with the projection in the January Monetary Policy Report (MPR). This is in part because many central banks have eased monetary policies in recent months to counter persistent slack and low inflation, as well as the effect of lower commodity prices in some cases. At the same time, economies continue to adjust to lower oil prices, which have fluctuated at or below levels assumed in the January MPR. Strong growth in the United States is expected to resume in the second quarter of 2015 after a weak first quarter.

The Canadian economy is estimated to have stalled in the first quarter of 2015. The Bank’s assessment is that the impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger. The ultimate size of this impact will need to be monitored closely. Underneath the effects of the oil price shock, the natural sequence of stronger non-energy exports, increasing investment, and improving labour markets is progressing. This sequence will be bolstered by the considerable easing in financial conditions that has occurred and by improving U.S. demand. As the impact of the oil shock on growth starts to dissipate, this natural sequence is expected to re-emerge as the dominant trend around mid-year. Real GDP growth is projected to rebound in the second quarter and subsequently strengthen to average about 2 1/2 per cent on a quarterly basis until the middle of 2016. The Bank expects real GDP growth of 1.9 per cent in 2015, 2.5 per cent in 2016, and 2.0 per cent in 2017.

The very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation. However, the anticipated recovery in growth means that the output gap will be back in line with its previous trajectory later this year. Consequently, the effects on core inflation of the lower dollar and the output gap will continue to offset each other. As the economy reaches and remains at full capacity around the end of 2016, both total and core inflation are projected to be close to 2 per cent on a sustained basis.

Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected. The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.

Bank of Canada maintains overnight rate target at 1 per cent     

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Inflation is close to the 2 per cent target and is evolving as the Bank anticipated in its July Monetary Policy Report (MPR). Recent data reinforce the Bank’s view that the earlier pickup in inflation was attributable to the temporary effects of higher energy prices, exchange rate pass-through, and other sector-specific factors rather than to any change in domestic economic fundamentals.

The global economy is performing largely as expected. The recovery in Europe appears to be faltering as the situation in Ukraine weighs on confidence. In the United States, a solid recovery seems to be back on track, with business investment now making a significant contribution to growth. Global financial conditions remain very stimulative and longer-term bond yields have eased even further.

In Canada, stronger growth in the second quarter has brought GDP to almost exactly the level the Bank had projected in July’s MPR. Canadian exports surged in the second quarter after a weak winter, supported notably by stronger U.S. investment spending and the past depreciation of the Canadian dollar. While an increasing number of export sectors appear to be turning the corner toward recovery, this pickup will need to be sustained before it will translate into higher business investment and hiring. Meanwhile, activity in the housing market has been stronger than anticipated. The Bank still expects excess capacity in the economy to be absorbed during the next two years.  

Overall, the risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished. The balance of these risks is still within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1 per cent. The Bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks.

Benjamin Tal Feb 2014 economic update (summarized bullet points):

• The Eurozone currently has a 25% unemployment rate overall, with a 50% unemployment rate among young people.  They have a very different culture, however, where not everyone has to be 100% independent and people just share and move in with one another if things get tight.
• He predicts that spending will increase in the Eurozone over the next 2 years
• He currently feels that Germany has the most attractive real estate market in the world
• He feels that days of massive increases with oil and commodity prices are over, and we will see those prices stabilize.
• The US is generating more jobs in higher paying sectors, instead of just more overall jobs.  This is creating more stability
• Delinquency rates in the US are back to normal, and credit scores are at an all time high.  People have not been spending for a number of years, and the lenders were not doing much lending.  As a result, the people are “starving”, and can’t wait to start spending again.  The banks will begin to open up due to higher credit scores and better quality jobs, so this will drive the economy going forward and likely cause interest rate increases.
• He doesn’t expect the Feds to touch interest rates until 2015 at the earliest
• Long term rates will likely top out about 80bps-90bps higher than today.  People need to remember that an increase from 2% to 4% is still a 100% increase in rates, which has major impact on the economy, so t keep that in mind when wondering how high rates will climb.
• Canada actually borrowed our way out of the recession.  As a result, we are carrying more debt than most countries coming out of a recession, making us more susceptible to rising interest rates.
• The US lowered debt levels during the recession, so they won’t feel the impact of rising rates as much as Canada will.
• He feels that the Canadian dollar had no business being at par with the US dollar, and actually belongs somewhere between $0.85 and $0.90.  The reason we got so high was that while the rest of the world was working through some very difficult times, Canada stood out as a stable place to invest money.  Now that things are improving in the Eurozone and US, we are seeing less investment in Canada, hence the dropping Canadian dollar.
• Before going into the recession in 2008, the US had build 60% more than Canada, and more importantly, had 33% of their mortgages in sub prime.  Sub prime mortgages in Canada only make up 5.8% of the total.
• 30%-35% of the overall housing market in BC is owned by investors.  The good news is that, while many of these investors are foreigners, only a small portion of them live elsewhere. 
• In Vancouver, more than 50% of the investors have no mortgage or have large down payments.  This shows commitment, and is good for long term housing prices.
• Vacancy rates are currently at 1.7% in Vancouver and will gradually lower.  A strong rental market like this encourages investors and brings stability to housing prices
• Canada’s young people have record high education at the same time as record poverty in these same people.  Education isn’t translating into high paying jobs right now.
• Home ownership rate has reached its peak as 1^st time home buyers are priced out of the market and are being forced to rent.

The government has announced, effective February 19, 2014, under the Property Transfer Tax (PTT) First-Time Home Buyers’ Exemption program, qualifying first-time buyers can buy a home worth up to $475,000. The previous threshold was $425,000.

The partial exemption continues and will apply to homes valued between $475,000 and $500,000.

With this change, the government estimates 1,700 additional first-time buyers will annually be eligible to save up to $7,500 in PTT when they buy their home.

The government estimates this measure will cost $8 million in lost tax revenue each year.