The Bank acknowledged that Canadian economic growth has been stronger than anticipated and temporary factors such as rising energy
prices may drive the overall rate of inflation towards the Bank’s upper target band.
In contrast, however, the Bank also suggested that the strength of the Canadian dollar vis-à-vis the US continues to exert headwinds on economic growth, especially in the still-recovering export sector.
Analysis: In coming to its April interest rate decision, the Bank of Canada had to balance strong fourth quarter economic growth and energy induced inflation with the impact of the strong Canadian dollar on export-related growth.
The strong Canadian dollar and the fact that the economy is expected to be operating below potential through 2011 led to the decision hold off on an interest rate hike. Looking forward, the consensus view continues to point toward resumption in rate hikes in the second half of 2011
Source: Bank of Canada
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