David Dodge: Summary of the latest monetary policy report
Opening statement by David Dodge, Governor of the Bank of Canada, at a press conference following
the release of the Monetary Policy Report Update, Ottawa, 26 January 2006.
* * *
Today, we released the Update to our October Monetary Policy Report (MPR). The Update reviews
economic and financial trends in the context of Canada's inflation-control strategy.
The Canadian and world economies are evolving essentially in line with the Bank's expectations, and
the outlook for growth and inflation in Canada is similar to that in the October MPR. Canada's
economy continues to adjust to global developments and to the associated changes in relative prices.
The Bank continues to judge that the Canadian economy is operating at its production capacity and
will grow roughly in line with its production potential through 2007. Annual GDP growth is expected to
be 3.1 per cent this year and 2.9 per cent in 2007, with strong growth in domestic demand and further
gains in exports.
Total CPI inflation, which was 2.3 per cent in the fourth quarter of 2005, will continue to be affected by
the prices of crude oil and natural gas. The Bank projects that total inflation will be about 2.5 per cent
in the first half of 2006, easing to 2 per cent by the first half of 2007. Core inflation, which was
1.6 per cent in the fourth quarter of 2005, should also return to 2 per cent by the first half of next year.
Risks to the Bank's projection remain balanced for 2006. Through 2007 and beyond, risks are tilted to
the downside, as the unwinding of global imbalances could involve a slowdown in world economic
activity.
In line with the Bank's base-case projection and current assessment of risks, some modest further
increase in the policy interest rate would be required to keep aggregate supply and demand in balance
and inflation on target over the medium term.