Highlights of the April 13, 2016 Bank of Canada interest rate decision and MPR:

  • Rates held at 0.50% as forecast by all 30 economists in BBG survey
  • Risks to inflation profile are 'roughly balanced'
  • Sees output gap closing in second half of 2017 vs 'around the end of 2017' prior
  • Sees 2016 growth at 1.7% vs prior 2016 GDP forecast of 1.4%
  • Sees 2017 growth at 2.3% vs prior 2017 GDP forecast of 2.4%
  • After a slow start to 2016, the US economy is expected to regain momentum, but with a lower profile and a composition that is less favourable for Canadian exports
  • Financial conditions have improved
  • BOC expects deeper cuts to investment in Canada's energy sector than were forecast in January despite higher oil
  • First-quarter GDP growth appears to have been unexpectedly strong, but some of that strength is due to temporary factors and is likely to reverse in the second quarter
  • It does appear that the positive forces at work in the economy are starting to outweigh those that are negative

Quotable:

"This new growth profile, combined with the revised estimate for potential, suggests the output gap could close somewhat earlier than the Bank had anticipated in January, likely in the second half of 2017."

I was expecting this to be a tad more optimistic, like around midyear. It's still an upgrade though and the Canadian dollar kneejerk reaction was higher in CAD.

Overall, the statement is upbeat and that's CAD-positive. Poloz speaks at 11:15 am ET.

Update:

An interesting footnote in the MPR on the output gap.

"The projection is based on an assumed value for the output gap of -1.0 per cent in the first quarter of 2016, as opposed to the January assumption of -1.3 per cent for the fourth quarter of 2015, primarily owing to upward revisions to estimates of growth in these two quarters."

So it's closed 0.3 pp based on their forecasts. That's a good clip but they're skeptical about growth later and emphasize how uncertain projections are.