(February 6 – 11:45 ET) – David Dodge made his debut as the new governor of the Bank of Canada with this morning’s release of the Monetary Policy Report Update.

In the update, the Canada’s central bank revised its projection for Canada’s economic growth this year down to about 3%.

But it suggests that the outlook has weakened further since the report was written. “Based on the accumulating evidence, it now appears that U.S. economic activity in the first half of the year will be weaker than projected in the Update, but we still expect it to rebound in the second half,” says Dodge. “This poses some near-term risks for the Canadian economy.”

The speech seems to suggest that the bank is poised for further rate cuts, noting that the bank made its 25 basis point reduction at the last policy meeting based on the information available for the update. Dodge remains generally upbeat about the longer-term economic fundamentals however, noting, “At the same time, high levels of employment and rising disposable incomes are working to sustain domestic demand growth here in Canada. And our solid fundamentals — low inflation, a declining public sector debt relative to the size of our economy, and business restructuring — have put the Canadian economy in a better position to adjust to external developments.”

The report update now projects that core inflation will stabilize at about 2%, and total Consumer Price Index inflation is expected to converge with the core rate in the second half, assuming that world crude oil prices stay at current levels. It also assumes that the U.S. economy would expand by 2.0% to 2.5%, on average, in 2001.
-IE Staff