Economy May Be Stronger: BofC


CBJ – Don’t look now but Bank of Canada Governor Stephen Poloz has offered up the first inkling that a rate hike may be coming sooner than expected, saying the economy is stronger than initially thought. However, an immediate rate hike is likely not in the offing – it merely means the prospect of a rate hike may hit before late next year, as most analysts have been predicting.

The central bank kept its key trendsetting overnight interest rate unchanged at an even 1% on Wednesday, extending the longest period of rate stability since the early 1950s.

But the bank now says the output gap – a key measure of excess capacity in the economy – is smaller than it estimated less than two months ago, and that is in spite of “significant” remaining slack in the labour market and the decline in oil. Previously the BofC said the output gap would close some time in the second half of 2016, so it could be as much as six months earlier than thought.

“Canada’s economy is showing signs of a broadening recovery,” the bank said in its final rate-setting announcement of 2014. “The hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun.”