This week’s news was positive. The Bank of Canada maintained their current 1% interest rate policy. More importantly, the underlying data for the country is very strong. The ECB halved their bond buying program while maintaining rates at their current level. Other news from the EU supported the ECB’s rosy assessment of the economy. Finally, the UK economy grew at a modest pace.
The Bank of Canada maintained their current 1% interest rate policy at their latest meeting. Their policy contained a very positive assessment of the Canadian economy:
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.
Recent GDP data corroborate the Bank’s rosy opinion. In the latest report, consumer spending on durable goods was up 8.2%, non-durable goods spending increased 2.6% and service spending rose 2.9% (all figures Y/Y). Business spending advanced 1.1% with machinery spending moving 2.1% higher.Exports – a key to Canadian GDP – were up 5.7%. Better yet, inflation is contained:
It’s difficult to see the BOC raising rates much higher in the current environment.
In their latest policy announcement, the ECB announced they would halve their bond buying program next year:
Second, as regards non-standard monetary policy measures, we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €60 billion until the end of December 2017. From January 2018 our net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration.
