News from © The Canadian Press, 2016
Vancouver is proposing a one-per-cent tax on the value of empty homes in an effort to increase the vacancy rate in the city's incredibly tight rental market. Mayor Gregor Robertson unveiled the plan Wednesday(Nov 8, 2016). It would become the first of its kind in Canada if approved by city council.
All homeowners in Vancouver would be required to self-declare whether a property is their principal residence where they receive mail and file their taxes.
Homes that aren't principal residences and aren't rented out or exempted for a number of other reasons would be taxed on the assessed value. That means a $1-million home would be taxed $10,000.
Robertson said the main goal of the tax was not to raise revenue but rather to encourage owners to rent out their properties in a city with the lowest rental vacancy rate and highest rents in Canada.
"We are in a housing crisis here and we need to take action," he told a news conference. "People are feeling squeezed on all sides."
A city-commissioned study in March found at least 10,800 homes were sitting empty in Vancouver for a year or more, most of them condominiums. More than 22,000 homes were unoccupied or occupied by temporary residents on census day in May 2011.
"It's absolutely unacceptable for all that housing to be treated as a commodity first, as a business holding, when housing is in such short supply," Robertson said.
The province passed an amendment to the Vancouver Charter in July allowing the city to create the tax. Staff have consulted with the public, met with local experts and sought input from cities around the world with vacancy taxes, including Paris and Jerusalem.
The proposal is set to go before council next week and staff hope to have the tax in place for the 2017 year, with the first payments expected in 2018.
Robertson stressed that most homeowners, including snowbirds, would not have to pay the tax.
The tax would be levied on non-principal residences that are left empty for six months out of a year or longer, but staff have proposed eight exemptions.
The exemptions include: properties under renovation or construction with valid permits; homes that are empty because the occupant is getting medical care or has recently died; condominiums that are subject to existing strata rental restrictions; and properties that the owner uses for work purposes for six months a year but claims principal residence elsewhere.
As for enforcement, the city is proposing to audit homeowners on a targeted and random basis. Owners would be required to provide evidence such as a B.C. driver's licence, medical services card or vehicle insurance that proves the home is their principal residence.
Owners would be able to appeal, and the city would establish a vacancy tax review office to handle complaints filed by owners who claim the tax has been applied to their property in error.
Homeowners who fail to pay the tax would face a five per cent late payment penalty. If they still haven't paid by the end of the year, the outstanding balance would be added to their property tax account and accrue daily interest.
Those who fail to declare the status of their property by the second business day in February would see their units deemed vacant.
Anyone who makes a false declaration could be prosecuted by the city with a maximum fine of $10,000 per day of the continuing offence.
It will cost $4.7 million through the end of 2018 to set up the tax, with an annual cost of $1.5 million after that. But the city expects tax revenue to cover the costs, with some money left over for affordable housing initiatives.
Bank of Canada Interest Rate Announcement - October 19, 2016
The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year.
There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.
The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year.
There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.
Canadian Housing Starts - October 11, 2016
Canadian housing starts jumped 20 per cent in September to 220,617 total units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts moved moderately higher to just under 200,000 units SAAR, above average annual growth in Canadian households. New home construction will likely slow in coming months as the consequences of government's new mortgage regulations ripple through the housing market.
Housing starts in BC surged 40 per cent higher to 47,560 in September and were 79 per cent higher on a year-over-year basis. Single detached starts rose 27 per cent compared to last September while multiple unit starts nearly doubled. Through the first three quarters of the year, BC housing starts are up 39 per cent compared to 2015.
Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 110 per cent year-over-year in September, led by triple digit growth in both single and multiple units. In the Victoria CMA, housing starts tripled compared to September 2015 due to strong growth in new multiple unit starts. New home construction in the Kelowna CMA rose 16 per cent on balanced growth between single and multiple unit starts. Housing starts in the Abbotsford-Mission CMA declined 64 per cent compared to last year as multiple unit projects took a breather in September following several strong months of activity.
Canadian housing starts jumped 20 per cent in September to 220,617 total units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts moved moderately higher to just under 200,000 units SAAR, above average annual growth in Canadian households. New home construction will likely slow in coming months as the consequences of government's new mortgage regulations ripple through the housing market.
Housing starts in BC surged 40 per cent higher to 47,560 in September and were 79 per cent higher on a year-over-year basis. Single detached starts rose 27 per cent compared to last September while multiple unit starts nearly doubled. Through the first three quarters of the year, BC housing starts are up 39 per cent compared to 2015.
Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 110 per cent year-over-year in September, led by triple digit growth in both single and multiple units. In the Victoria CMA, housing starts tripled compared to September 2015 due to strong growth in new multiple unit starts. New home construction in the Kelowna CMA rose 16 per cent on balanced growth between single and multiple unit starts. Housing starts in the Abbotsford-Mission CMA declined 64 per cent compared to last year as multiple unit projects took a breather in September following several strong months of activity.
End of the 2% Transition Tax on new homes
April 1, 2015 marks the end of the 2% BC Transition Tax on new homes.You may remember a few years back with the end of the HST and the return to the PST/GST system, the government introduced a 2% Transition Tax to ensure the equitable application of tax for purchasers of new residential homes currently under the HST system.
As planned, the transition will end April 1.
This means that after April 1 you will no longer have to submit a Contract of Purchase and Sale of a New Home Addendum to report out the Transition Tax.
Click here for information from the BC government.
Click here for info from the CRA.
April 1, 2015 marks the end of the 2% BC Transition Tax on new homes.You may remember a few years back with the end of the HST and the return to the PST/GST system, the government introduced a 2% Transition Tax to ensure the equitable application of tax for purchasers of new residential homes currently under the HST system.
As planned, the transition will end April 1.
This means that after April 1 you will no longer have to submit a Contract of Purchase and Sale of a New Home Addendum to report out the Transition Tax.
Click here for information from the BC government.
Click here for info from the CRA.
Bank of Canada Interest Rate Announcement - July 13, 2016
The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is on track to return to its target of 2 per cent by 2017, though heightened global uncertainty presents a risk to that forecast. The Bank judges the overall risks to its forecast as roughly balanced, but noted financial vulnerabilities are elevated in the greater Vancouver and Toronto areas due to rising home prices.
Economic growth in Canada appears to be slowing as expected in the second quarter. Our tracking estimate of second quarter real GDP growth is currently at -0.5 per cent following a strong start to the year. Most of the slowdown is due to disruptions caused by the Alberta wildfires which points to a strong rebound as oil production comes back on-line and the reconstruction effort begins. That rebound will be further supported by a boost of fiscal stimulus planned for the second half of the year. An improved outlook for growth and firm but low trend inflation probably rule out any further rate cuts from the Bank, particularly given that long-term interest rates have already fallen to near record lows in recent weeks. Our forecast remains that the Bank will be sidelined for the remainder of 2016 and through most if not all of 2017.
The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is on track to return to its target of 2 per cent by 2017, though heightened global uncertainty presents a risk to that forecast. The Bank judges the overall risks to its forecast as roughly balanced, but noted financial vulnerabilities are elevated in the greater Vancouver and Toronto areas due to rising home prices.
Economic growth in Canada appears to be slowing as expected in the second quarter. Our tracking estimate of second quarter real GDP growth is currently at -0.5 per cent following a strong start to the year. Most of the slowdown is due to disruptions caused by the Alberta wildfires which points to a strong rebound as oil production comes back on-line and the reconstruction effort begins. That rebound will be further supported by a boost of fiscal stimulus planned for the second half of the year. An improved outlook for growth and firm but low trend inflation probably rule out any further rate cuts from the Bank, particularly given that long-term interest rates have already fallen to near record lows in recent weeks. Our forecast remains that the Bank will be sidelined for the remainder of 2016 and through most if not all of 2017.
Federal Government Changes to Mortgage Insurance Rules - October 3, 2016
The Federal Government announced significant changes to regulations for new-government backed insured mortgages today. Effective October 17, 2016, all insured homebuyers will have to qualify at the posted 5-year qualifying rate. This is a change from previous policy where only variable rate mortgages and mortgages with terms less than 5-years were subject to a higher qualifying rate.
With this move, the Federal Government has chosen to offset a modest risk to the taxpayer by severely eroding affordability for low equity home buyers, particularly first time home buyers. The qualifying rate is updated weekly and available on the Bank of Canada website. It is currently 4.64 per cent, about 200 basis points higher than the best bank offered rates.
To qualify for mortgage insurance, a homebuyer's debt servicing ratio must be no higher than:
The Federal Government is also instituting new eligibility rules for low-ratio (higher than 20% down payment) mortgages backed by government insurance. As of November 30, 2016, to be eligible for government insurance, new mortgages must meet the following requirements:
The Federal Government announced significant changes to regulations for new-government backed insured mortgages today. Effective October 17, 2016, all insured homebuyers will have to qualify at the posted 5-year qualifying rate. This is a change from previous policy where only variable rate mortgages and mortgages with terms less than 5-years were subject to a higher qualifying rate.
With this move, the Federal Government has chosen to offset a modest risk to the taxpayer by severely eroding affordability for low equity home buyers, particularly first time home buyers. The qualifying rate is updated weekly and available on the Bank of Canada website. It is currently 4.64 per cent, about 200 basis points higher than the best bank offered rates.
To qualify for mortgage insurance, a homebuyer's debt servicing ratio must be no higher than:
- Gross Debt Service - 39 per cent of household income, including mortgage payment, taxes and heating costs.
- Total Debt Service - 44 per cent of household income, including mortgage payment, taxes, heating costs and all other debt payments
- before October 3, 2016: a mortgage insurance application was received;
- the lender made a legally binding commitment to make the loan;
- the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.
The Federal Government is also instituting new eligibility rules for low-ratio (higher than 20% down payment) mortgages backed by government insurance. As of November 30, 2016, to be eligible for government insurance, new mortgages must meet the following requirements:
- A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
- A maximum amortization length of 25 years;
- A maximum property purchase price below $1,000,000 at the time the loan is approved;
- For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
- A minimum credit score of 600 at the time the loan is approved;
- A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
- A property that will be owner-occupied.
Canadian Inflation - June 17, 2016
The Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose 1.5 per cent in the 12 months to May, down 0.2 points from inflation in April. Gasoline prices were a significant drag on overall inflation, excluding gasoline, inflation was running at 1.9 per cent. The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline increased 0.1 point to 2.1 per cent, close to the Bank's target for inflation of 2 per cent. In BC, provincial consumer price inflation was 1.7 per cent.
With inflation held in check by flagging commodity prices and a slow growing economy, there is very little pressure on the Bank of Canada to tighten interest rates. Given the current outlook for the Canadian economy, inflation should remain below target over the next two years, keeping the Bank on the sidelines for the foreseeable future.
The Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose 1.5 per cent in the 12 months to May, down 0.2 points from inflation in April. Gasoline prices were a significant drag on overall inflation, excluding gasoline, inflation was running at 1.9 per cent. The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline increased 0.1 point to 2.1 per cent, close to the Bank's target for inflation of 2 per cent. In BC, provincial consumer price inflation was 1.7 per cent.
With inflation held in check by flagging commodity prices and a slow growing economy, there is very little pressure on the Bank of Canada to tighten interest rates. Given the current outlook for the Canadian economy, inflation should remain below target over the next two years, keeping the Bank on the sidelines for the foreseeable future.
Bank of Canada Interest Rate Announcement - May 25, 2016
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens.
The Canadian economy got off to a very strong start and will likely end up recording real GDP growth above 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens.
The Canadian economy got off to a very strong start and will likely end up recording real GDP growth above 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.
Canadian and US Employment - May 6, 2016
Employment in Canada was essentially unchanged in April following a surge of job growth in March. Total employment fell by 2,100 jobs and the national unemployment rate held steady at 7.1 per cent. Total hours worked, which is closely associated with economic growth, increased by 0.9 per cent over the past 12 months.
Employment in BC continued to expand, rising by 13,000 jobs in April which helped drive the provincial unemployment rate down 0.5 points to 5.8 per cent. April marks the first time since 1976 that BC has had the lowest unemployment rate in the country. On a year-over-year basis, employment was 4.1 per cent higher compared to last April and year-to-date employment is up 3.3 per cent in 2016.
US Non-farm payrolls increased by 160,000 jobs in April and the US unemployment rate edged remained steady at 5 per cent. Over the past three months, the US economy added an average of 200,000 jobs per month in spite of weak economic growth in the first quarter.
Employment in Canada was essentially unchanged in April following a surge of job growth in March. Total employment fell by 2,100 jobs and the national unemployment rate held steady at 7.1 per cent. Total hours worked, which is closely associated with economic growth, increased by 0.9 per cent over the past 12 months.
Employment in BC continued to expand, rising by 13,000 jobs in April which helped drive the provincial unemployment rate down 0.5 points to 5.8 per cent. April marks the first time since 1976 that BC has had the lowest unemployment rate in the country. On a year-over-year basis, employment was 4.1 per cent higher compared to last April and year-to-date employment is up 3.3 per cent in 2016.
US Non-farm payrolls increased by 160,000 jobs in April and the US unemployment rate edged remained steady at 5 per cent. Over the past three months, the US economy added an average of 200,000 jobs per month in spite of weak economic growth in the first quarter.
Canadian Manufacturing Sales - April 15, 2016
After a strong start to the year and three consecutive months of gains, Canadian manufacturing sales decreased 3.3 per cent in February. Sales were dragged lower by declines in 16 of 21 industries with most of the fall in sales due to the motor vehicle parts, petroleum and coal products and aerospace industries.
In BC, where the manufacturing sector employs approximately 170,000 people, sales declined 0.6 per cent on a monthly basis and fell 2.2 per cent year-over-year. Struggling economies in neighboring provinces, a slower than expected first quarter in the United States and the ongoing slowdown in China are all key factors in lower demand for BC manufacturing products. The export and manufacturing sector is the one area of the otherwise strong BC economy that is clearly lagging and that trend is expected to last for much of 2016. However, a pick up in economic growth in the United States following a slow start to the year should boost demand later this year.
After a strong start to the year and three consecutive months of gains, Canadian manufacturing sales decreased 3.3 per cent in February. Sales were dragged lower by declines in 16 of 21 industries with most of the fall in sales due to the motor vehicle parts, petroleum and coal products and aerospace industries.
In BC, where the manufacturing sector employs approximately 170,000 people, sales declined 0.6 per cent on a monthly basis and fell 2.2 per cent year-over-year. Struggling economies in neighboring provinces, a slower than expected first quarter in the United States and the ongoing slowdown in China are all key factors in lower demand for BC manufacturing products. The export and manufacturing sector is the one area of the otherwise strong BC economy that is clearly lagging and that trend is expected to last for much of 2016. However, a pick up in economic growth in the United States following a slow start to the year should boost demand later this year.
Bank of Canada Interest Rate Announcement - April 13, 2016
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that although first quarter GDP growth appears unexpectedly strong, it believes that strength is temporary and will likely reverse in the second quarter. However, fiscal measures announced in the March federal budget are anticipated to have a notable positive impact on growth. The Bank is now forecasting that the economy will grow 1.7 per cent this year, 2.3 per cent next year and 2 per cent in 2018. That upgrade to growth means the output gap will close sooner than expected, likely in the second half of 2017. That suggests a return to the Bank's 2 per cent target for inflation along the same time-line. Overall, the Bank judges risk in the economy as roughly balanced. Interestingly, the Bank did not highlight the housing sector as a risk despite frenzied activity in both Vancouver and Toronto.
A significantly upgraded economic forecast will very likely close the door on further discussion of an impending rate cut, though downside risks in the global economy remain. Indeed, as the economy accelerates and the output gap closes, we expect the Bank to move to a tightening bias. However an increase in interest rates is still some time away. If economic growth and job creation continue to surprise to the upside, it is possible that the Bank will begin raising rates in mid to late 2017 and we could potentially see a modest rise in mortgage rates toward the end of this year in anticipation of tighter monetary policy.
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that although first quarter GDP growth appears unexpectedly strong, it believes that strength is temporary and will likely reverse in the second quarter. However, fiscal measures announced in the March federal budget are anticipated to have a notable positive impact on growth. The Bank is now forecasting that the economy will grow 1.7 per cent this year, 2.3 per cent next year and 2 per cent in 2018. That upgrade to growth means the output gap will close sooner than expected, likely in the second half of 2017. That suggests a return to the Bank's 2 per cent target for inflation along the same time-line. Overall, the Bank judges risk in the economy as roughly balanced. Interestingly, the Bank did not highlight the housing sector as a risk despite frenzied activity in both Vancouver and Toronto.
A significantly upgraded economic forecast will very likely close the door on further discussion of an impending rate cut, though downside risks in the global economy remain. Indeed, as the economy accelerates and the output gap closes, we expect the Bank to move to a tightening bias. However an increase in interest rates is still some time away. If economic growth and job creation continue to surprise to the upside, it is possible that the Bank will begin raising rates in mid to late 2017 and we could potentially see a modest rise in mortgage rates toward the end of this year in anticipation of tighter monetary policy.
Bank of Canada Interest Rate Announcement - March 9, 2016
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as anticipated but that a weak economy will continue to dampen growth in consumer prices. Overall, the Bank judges that risks in the economy are roughly balanced, though financial vulnerabilities have increased due to falling commodity prices.
With inflation trending close to target while the economy struggles, the Bank of Canada, whose mandate is to target 2 per cent inflation over the medium run, has to strike a fairly delicate balance. Low oil prices continue to vex the Canadian economy spurring job losses in energy producing provinces while also putting downward pressure on the exchange rate, which makes the cost of imported goods from heavy machinery to fresh produce more expensive. We expect that weak economic growth will continue in the first quarter of 2016, but the possibility of an effective fiscal stimulus, a stronger US economy and a stabilization of oil prices points to stronger growth ahead. The door remains open for the Bank of Canada to reduce rates once more in 2016, though our expectation is that the Bank will remain on the sidelines throughout the year.
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as anticipated but that a weak economy will continue to dampen growth in consumer prices. Overall, the Bank judges that risks in the economy are roughly balanced, though financial vulnerabilities have increased due to falling commodity prices.
With inflation trending close to target while the economy struggles, the Bank of Canada, whose mandate is to target 2 per cent inflation over the medium run, has to strike a fairly delicate balance. Low oil prices continue to vex the Canadian economy spurring job losses in energy producing provinces while also putting downward pressure on the exchange rate, which makes the cost of imported goods from heavy machinery to fresh produce more expensive. We expect that weak economic growth will continue in the first quarter of 2016, but the possibility of an effective fiscal stimulus, a stronger US economy and a stabilization of oil prices points to stronger growth ahead. The door remains open for the Bank of Canada to reduce rates once more in 2016, though our expectation is that the Bank will remain on the sidelines throughout the year.
Bank of Canada Interest Rate Announcement - January 20, 2016
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as expected with total CPI continuing to test the bottom of the Bank's 1-3 per cent target range due to low energy prices. However, the Bank expects that inflation will rise over the next year, reaching its 2 per cent target by mid-2017. On the economy, the Bank sees economic growth firming after a slowdown in the fourth quarter of last year. The Bank projects that the Canadian economy will grow a modest 1.5 per cent this year before strengthening to 2.5 per cent in 2017.
In not moving on interest rates this morning, the Bank is recognizing that there is little that monetary policy can do to offset a significant supply-side shock such as the dramatic decline in oil prices. Indeed, given Canada's floating exchange rate, the loonie has already adjusted to help partially absorb the negative impact of falling commodity prices on exports. Keeping in mind that the Canadian economy is still projected to grow at a rate very close to its somewhat diminished potential for 2016 and that inflation will be spurred by a dramatically lower Canadian dollar, we anticipate that the Bank will reassess the need for monetary stimulus once the worst of the oil-shock had passed. That means, barring a significant deterioration in the economy, the Bank will more than likely remain sidelined for 2016.
The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as expected with total CPI continuing to test the bottom of the Bank's 1-3 per cent target range due to low energy prices. However, the Bank expects that inflation will rise over the next year, reaching its 2 per cent target by mid-2017. On the economy, the Bank sees economic growth firming after a slowdown in the fourth quarter of last year. The Bank projects that the Canadian economy will grow a modest 1.5 per cent this year before strengthening to 2.5 per cent in 2017.
In not moving on interest rates this morning, the Bank is recognizing that there is little that monetary policy can do to offset a significant supply-side shock such as the dramatic decline in oil prices. Indeed, given Canada's floating exchange rate, the loonie has already adjusted to help partially absorb the negative impact of falling commodity prices on exports. Keeping in mind that the Canadian economy is still projected to grow at a rate very close to its somewhat diminished potential for 2016 and that inflation will be spurred by a dramatically lower Canadian dollar, we anticipate that the Bank will reassess the need for monetary stimulus once the worst of the oil-shock had passed. That means, barring a significant deterioration in the economy, the Bank will more than likely remain sidelined for 2016.