The Bank of Canada is warning that unusually low inflation pressures will persist well into 2016 – a new forecast that could further delay future interest rate hikes and send the Canadian dollar lower.
The central bank kept its key overnight interest rate unchanged at 1% today, or where it has been since September 2010.
But the clear signal from bank Governor Stephen Poloz is that disinflation is his paramount concern, and it isn’t fading any time soon.
“Inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance,” the central bank said in a statement.
Bank of Montreal Chief Economist Douglas Porter said Poloz is getting what he wants – a lower dollar – without actually cutting rates to get it. “Suffice it to say that the bank is welcoming the weakening Canadian dollar with open arms,” Porter said.
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