Thursday, July 13, 2006

Toodle-loo to tightening

The Monetary Policy Report (MPR) released by the BoC today is dovish and holds no surprises.
The BoC is sticking close to its word: core inflation will average 1.8% in Q2 and 2.0% in each of the next two quarters and throughout 2007.
Some analysts are saying the bank's inflation forecast is too low, while others say it's too high. Yet again TD offers a conservative forecast and BMO shoots high. Let it also be known that TD Security's chief economist and his mom support Dodge's decision to maintain the interest rate. How nice.

On one hand productivity is booming while business investment and consumption move strong. On the other hand, the timely reduction in GST will lower the inflation rate by 0.6 percentage points, says the BoC. Global imbalance and lower import prices will also create downward pressure. The BoC blames the misguided April MPR on the strong trading of the dollar putting a drag on exports.

Goodbye tightening cycle.

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