Stephen Gordon puts the January Monetary Policy Report under the lens
Bank of Canada Governor Mark Carney speaks during a news conference upon the release of the Monetary Policy Report in Ottawa January 23, 2013. REUTERS/Chris Wattie (CANADA – Tags: POLITICS BUSINESS)
They key elements of the Bank of Canada’s Monetary Policy Report (MPR) that was released yesterday are by now well-known: growth in the second half of 2012 was weaker than expected, and the growth of consumer and mortgage debt has slowed. Put together, the two developments mean that whatever date the Bank might have had in mind to start increasing interest rates, it’s been put off. Again.
But there are another couple of points that don’t seem to have received much attention:
The graph below charts the projections for GDP growth from the last two MPRs. The solid lines are the data that were available when the projections were made, while the dashed lines represent projections.
Given the lags with which monetary policy operates, current decisions about monetary policy are being made with an eye to projections for the latter half of 2014. Both the October and January MPRs have GDP reaching the Bank’s estimate for potential GDP by the end of 2014, so the essential strategy is the same: the next interest rate change will be an increase, although the timing of that increase has been deferred.