Statement provides hedge against inflation remaining below target...

• The Bank of Canada left the overnight rate unchanged at 1.00% as expected.
• The Bank says monitoring data to determine “timing and direction of the next change to the policy rate.”
• It reiterated that overall balance of risks in same “zone” as October.
• Today’s statement, while on the margin more upbeat on the growth outlook than in previous months, hammered home the Bank’s concerns about inflation remaining below target for a sustained period and the risks that this underperformance will continue. Our forecast for Canada’s economy in 2014 is for growth to accelerate to a 2.6% pace with both the export sector and investment activity picking up. By our estimate, the output gap will be eliminated in the second half of 2015; at which time, the inflation rate will be within reach of the Bank’s 2.0% target. Against this backdrop, we see little need for the Bank to lower the overnight rate, and while we expect the next move will be a hike, no changes are on tap for 2014.