(Adds C$ and analyst reaction, context)
By Randall Palmer and David Ljunggren
OTTAWA, Sept 3 The Bank of Canada reiterated its
explicitly neutral stance and kept its overnight interest rate
at 1 percent on Wednesday, while highlighting its concern about
the overstretched household sector, in remarks that helped boost
the Canadian dollar.
"Overall, the risks to the outlook for inflation remain
roughly balanced, while the risks associated with household
imbalances have not diminished," it stated.
The central bank dropped previous references to the
constructive evolution of household imbalances and to a soft
landing for the housing market and said "activity in the housing
market has been stronger than anticipated."
And it eliminated its previous expression of "serial
disappointment" on global growth, highlighting a solid recovery
in the United States and stronger Canadian exports.
Royal Bank of Canada chief economist Craig Wright said the
statement was largely unchanged from July, but he did say that
at the margins the remarks on housing and household debt "might
be interpreted as a little more hawkish."
The Canadian dollar rose to C$1.0873 to the greenback, or
91.97 U.S. cents, by 11:48 a.m. EDT (1548 GMT), from C$1.0913,
91.63 U.S. cents, before the statement.
"Overall I'd say the sense is that the bank sounds perhaps a
little less downbeat than in July," said Bank of Montreal chief
economist Doug Porter.
The central bank was sanguine about inflation, which peaked
at a 28-month high of 2.4 percent in June, saying recent data
reinforced the view that higher inflation had been attributable
to temporary effects "rather than to any change in domestic
Canadian growth in the second quarter was almost exactly as
forecast, it said, as exports surged with the support of
stronger U.S. investment spending and past depreciation of the
Canadian dollar. An increasing number of export sectors appeared
to be turning the corner toward recovery.
The overnight rate has been at 1 percent since Sept 8, 2010.
"The bank remains neutral with respect to the next change to
the policy rate: its timing and direction will depend on how new
information influences the outlook and assessment of risks," it
Governor Stephen Poloz last year dropped the tightening bias
of his predecessor, Mark Carney, and in July directly inserted
language into the statement saying the bank was neutral.
Virtually no one believes there is a 50 percent chance of a
rate cut, however. A Reuters survey of 39 economists before
Wednesday's statement unanimously forecast the next move would
The central bank and finance ministry had long voiced
concern about the amount of debt households had taken on, saying
that when mortgage rates eventually do rise some Canadians could
have trouble. But they had also recognized a tapering off of
The ratio of Canadian household debt to income fell to 163.2
percent in the first quarter from 163.9 percent in the fourth
quarter of 2013, Statistics Canada reported on June
Second quarter household debt data will be released on Sept.
(Additional reporting by Andrea Hopkins, Solarina Ho and
Alastair Sharp in Toronto; Editing by Frances Kerry)