Your guide to the Monetary Policy Report: A cheat-sheet

All you need to know—and a bunch of cool charts

The Bank of Canada released its quarterly  Monetary Policy Report this morning. Here’s what you need to know.



the economic expansion in the United States is progressing at a gradual pace (…)

The Bank estimates that QE3 will lift the level of U.S. GDP by 1.3 per cent by 2014 and, more broadly, boost global economic activity, increasing the demand for Canadian exports and supporting commodity prices. (…)

Relative to the July Report, U.S. GDP growth in 2013 and 2014 has been revised up to 2.3 per cent and 3.2 per cent, respectively, owing to a larger policy response by the Federal Reserve than was previously expected.

The Eurozone:

Europe is in recession, and recent indicators point to continued contraction


In China and other major emerging economies, growth has slowed somewhat more than expected, though there are signs of stabilization around current growth rates (…)

The ongoing slowdown, also reflected in weak industrial production data, is the result of continuing efforts by Chinese authorities to rein in an overheated property market, as well as reduced external demand, particularly from Europe (…)

China’s economy is expected to grow at a pace of about 7.7 per cent over the projection horizon. This represents a slight pickup from the recent rate of growth, but is a somewhat weaker forecast than in the July Report.

Commodity prices:

Notwithstanding the slowdown in global economic activity, prices for oil and other commodities produced in Canada have, on average, increased in recent months (…)

Prices for many commodities have increased since the July Report. A rise in crude oil prices and a rebound in base metal prices, both partly related to the announcement of new policy stimulus measures in several countries, account for much of the recent movement.

The Loonie:

The Canadian dollar has averaged 101 cents U.S. since the July Report, higher than the 98 cents U.S. assumed in July (Chart 18), and is assumed to average 101 cents U.S. over the projection horizon. 


GDP growth:

…the economy is expected to pick up and return to full capacity by the end of 2013. (…)

After taking into account revisions to the National Accounts, the Bank projects that the economy will grow by 2.2 per cent in 2012, 2.3 per cent in 2013 and 2.4 per cent in 2014.

Potential output growth can be thought of as the sum of the growth rates of trend labour input and trend labour productivity. The growth rate of potential output is expected to increase gradually from 2.0 per cent in 2012 to 2.2 per cent in 2014, reflecting higher trend productivity growth, before edging down to 2.1 per cent in 2015 (Table 2-A). The slowing in 2015 results from a further decline in the growth of trend labour input coupled with no change in the growth rate of trend labour productivity.

Household debt:

household debt ratios are expected to rise further before stabilizing by the end of the projection horizon (…)

Household credit continues to be readily available at near-record low rates. Growth in household credit has remained relatively stable at around 5.5 per cent since the beginning of the year, a pace below the historical
average (Chart 22), following an extended period of rapid growth that led to a substantial buildup in household debt.

Housing market:

Housing investment declined in the second and third quarters, following strong gains over the previous three quarters. Nonetheless, with signs of overbuilding, the level of housing investment still remains near historical highs

Residential investment is projected to contract, with its share of the overall economy declining from the current elevated level (Chart 31). In this regard, the measures implemented in recent months by federal authorities are expected to contribute to a more sustainable housing market in Canada.


Canadian exports are projected to pick up gradually but remain below their pre-recession peak until the first half of 2014, reflecting weak foreign demand and ongoing competitiveness challenges. These challenges include the persistent strength of the Canadian dollar, which is being influenced by safe-haven flows and spillovers from global monetary policy.


Core inflation has been lower than expected in recent months… Core inflation is expected to increase gradually over coming quarters, reaching 2 per cent by the middle of 2013 as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well anchored.


STUFF THAT MIGHT SPOIL THE PREDICTIONS (also known as “Risks to the Outlook”)

The three main upside risks to inflation in Canada relate to the possibility of higher global inflationary pressures, stronger Canadian exports and renewed momentum in Canadian residential investment.
The three main downside risks to inflation in Canada relate to the European crisis, weaker demand for Canadian exports and the possibility that growth in Canadian household spending could be weaker.

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