BOC Monetary Policy Statement From December 6 - Text

     OTTAWA (MNI) - The following is the complete text of the Bank of Canada

policy statement issued Wednesday. The October 2017 statement follows for

comparison:

     The Bank of Canada today maintained 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.

     The global economy is evolving largely as expected in the Bank's October

Monetary Policy Report (MPR). In the United States, growth in the third quarter

was stronger than forecast but is still expected to moderate in the months

ahead. Growth has firmed in other advanced economies. Meanwhile, oil prices have

moved higher and financial conditions have eased. The global outlook remains

subject to considerable uncertainty, notably about geopolitical developments and

trade policies.

     Recent Canadian data are in line with October's outlook, which was for

growth to moderate while remaining above potential in the second half of 2017.

Employment growth has been very strong and wages have shown some improvement,

supporting robust consumer spending in the third quarter. Business investment

continued to contribute to growth after a strong first half, and public

infrastructure spending is becoming more evident in the data. Following

exceptionally strong growth earlier in 2017, exports declined by more than was

expected in the third quarter. However, the latest trade data support the MPR

projection that export growth will resume as foreign demand strengthens. Housing

has continued to moderate, as expected.

     Inflation has been slightly higher than anticipated and will continue to be

boosted in the short term by temporary factors, particularly gasoline prices.

Measures of core inflation have edged up in recent months, reflecting the

continued absorption of economic slack. Revisions to past quarterly national

accounts have resulted in a higher level of GDP. However, this is unlikely to

have significant implications for the output gap because the revisions also

imply a higher level of potential output. Meanwhile, despite rising employment

and participation rates, other indicators point to ongoing - albeit diminishing

- slack in the labour market.

     Based on the outlook for inflation and the evolution of the risks and

uncertainties identified in October's MPR, Governing Council judges that the

current stance of monetary policy remains appropriate. While higher interest

rates will likely be required over time, Governing Council will continue to be

cautious, guided by incoming data in assessing the economy's sensitivity to

interest rates, the evolution of economic capacity, and the dynamics of both

wage growth and inflation.

     -- The following is the text of the BOC statement released on October 25,

2017:

     The Bank of Canada today maintained 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 has picked up in recent months, as anticipated in the Bank's July

Monetary Policy Report (MPR), reflecting stronger economic activity and higher

gasoline prices. Measures of core inflation have edged up, in line with a

narrowing output gap and the diminishing effects of lower food prices. The Bank

projects inflation will rise to 2 per cent in the second half of 2018. This is a

little later than anticipated in July because of the recent strength in the

Canadian dollar. The Bank is also mindful that global structural factors could

be weighing on inflation in Canada and other advanced economies.

     The global and Canadian economies are progressing as outlined in the July

MPR. Economic activity continues to strengthen and broaden across countries. The

Bank still expects global growth to average around 3 1/2 per cent over 2017-19.

However, this outlook remains subject to substantial uncertainty about

geopolitical developments and fiscal and trade policies, notably the

renegotiation of the North American Free Trade Agreement.

     Canada's economic growth in the second quarter was stronger than expected,

and was more broad-based across regions and sectors. Growth is expected to

moderate to a more sustainable pace in the second half of 2017 and remain close

to potential over the next two years, with real GDP expanding at 3.1 per cent in

2017, 2.1 per cent in 2018 and 1.5 per cent in 2019. Exports and business

investment are both expected to continue to make a solid contribution to GDP

growth. However, projected export growth is slightly slower than before, in part

because of a stronger Canadian dollar than assumed in July. Housing and

consumption are forecast to slow in light of policy changes affecting housing

markets and higher interest rates. Because of high debt levels, household

spending is likely more sensitive to interest rates than in the past.

     The Bank estimates that the economy is operating close to its potential.

However, wage and other data indicate that there is still slack in the labour

market. This suggests that there could be room for more economic growth than the

Bank is projecting without inflation rising materially above target.

     Based on this outlook and the risks and uncertainties identified in today's

MPR, Governing Council judges that the current stance of monetary policy is

appropriate. While less monetary policy stimulus will likely be required over

time, Governing Council will be cautious in making future adjustments to the

policy rate. In particular, the Bank will be guided by incoming data to assess

the sensitivity of the economy to interest rates, the evolution of economic

capacity, and the dynamics of both wage growth and inflation.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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