[Calxy]

Still Committed — As widely expected, the Bank of Canada (BoC) left all policy rates unchanged, and restated its conditional commitment to keeping the policy rate target at 25 basis points until the end of 2Q 2010.

Reality Check — The BoC offered markets with a much warranted reality check about the Canadian economic outlook and the seriousness of currency risks.

Ill Effects — The bank stated that the currency is dampening output and inflation, and that over time, it will more than fully offset favorable developments since July. Also, net exports will not lead the way to recovery.

They Mean It – To underscore the bank’s perturbation about the currency, policy makers downwardly revised medium-term GDP forecasts, and delayed expectations of the closure of the output gap and a return of inflation to the 2% target.

Not Out of Ammo — The BoC declined to explicitly mention QE, but restated that it retains considerable flexibility to conduct policy consistent with its framework for unconventional measures.

The Policy Path — The dovish tone of this morning’s announcement should help temper market expectations of an early rate hike. The statement gives further support to expectation that the bank will remain committed to keeping rates fixed for the stated duration, and not lift them until 3Q 2010.

October MPR – The BoC will publish its revised base-case projections and judgments in the October Monetary Policy Report this Thursday at 10:30ET.