Full text of the April 18, 2018 Bank of Canada statement

Bank of Canada maintains overnight rate target at 1 ¼ per cent

The Bank of Canada today maintained its
target for the overnight rate at 1 ¼ per cent. The Bank Rate is
correspondingly 1 ½ per cent and the deposit rate is 1 per cent.

Inflation in Canada is close to 2 per cent as temporary factors that
have been weighing on inflation have largely dissipated, as expected.
Consistent with an economy operating with little slack, core measures of
inflation have continued to edge up and are all now close to 2 per
cent. The transitory impact of higher gasoline prices and recent minimum
wage increases will likely cause inflation in 2018 to be modestly
higher than the Bank expected in its January Monetary Policy Report (MPR), returning to the 2 per cent target for the rest of the projection horizon.

The global economy is on a modestly stronger track than forecast in
January, with upward revisions to growth and potential output in a
number of major advanced economies. The outlook for the U.S. economy has
been further boosted by new government spending plans. However,
escalating geopolitical and trade conflicts risk undermining the global
expansion.

In Canada, GDP growth in the first quarter was weaker than the Bank
had expected, but should rebound in the second quarter, resulting in 2
per cent average growth in the first half of 2018. The economy is
projected to operate slightly above its potential over the next three
years, with real GDP growth of about 2 per cent in both 2018 and 2019,
and 1.8 per cent in 2020. This stronger profile for GDP incorporates new
provincial and federal fiscal measures announced since January. It also
reflects upward revisions to estimates of potential output growth,
which suggest the Canadian economy has made some progress in building
capacity.

Slower economic growth in the first quarter primarily reflects
weakness in two areas. Housing markets responded to new mortgage
guidelines and other policy measures by pulling forward transactions to
late 2017. Exports also faltered, partly owing to transportation
bottlenecks. Some of the weakness in housing and exports is expected to
be unwound as 2018 progresses.

The Bank anticipates that Canadian exports will strengthen as foreign
demand increases, but not sufficiently to recover the ground lost
during recent quarters. Export growth is being increasingly limited by
capacity constraints in some sectors. Continued gains in business
investment should build additional capacity in those sectors and in the
economy more generally. However, both exports and investment are being
held back by ongoing competitiveness challenges and uncertainty about
trade policies.

Growth in consumption remains robust, supported by strong labour
income growth. Wages have continued to pick up as expected, even after
factoring out recent minimum wage increases in Ontario and Alberta. The
Bank will continue to assess labour market data for signs of remaining
slack.

Some progress has been made on the key issues being watched closely
by Governing Council, particularly the dynamics of inflation and wage
growth. This progress reinforces Governing Council’s view that higher
interest rates will be warranted over time, although some monetary
policy accommodation will still be needed to keep inflation on target.
The Bank will also continue to monitor the economy’s sensitivity to
interest rate movements and the evolution of economic capacity. In this
context, Governing Council will remain cautious with respect to future
policy adjustments, guided by incoming data.