As far as monetary policy targets go, the Bank of Canada is seeing the kind of results it was hoping for when it commenced its most recent rate hike cycle. Yet, rate-setters are expected to tread carefully with any forward guidance that points to a drop in borrowing levels.
The Bank of Canada’s Governing Council is widely expected to leave its overnight rate on hold at 5.00% when it meets this week.
As well as the announcement, the bank is set to release its April Monetary Policy Report (MPR), and governor Tiff Macklem and senior deputy governor Carolyn Rogers will answer questions at the press conference set for 14:30 GMT/10:30 EST.
TD Securities predicted that the central bank would keep interest rates at current levels as it waited for more evidence the economy continued to track towards a sustained return to 2% inflation. “We see tail risks towards a strong signal of a near-term cut, and even a slim chance of an actual cut in light of CPI data,” it noted. “That said, our base case is that the meeting will not be a market mover and reiterate our call for a July cut (with risks to June) as things currently stand.”
Not yet a Goldilocks scenario
Data since the last meeting on 6 March appeared to support the notion that policymakers had succeeded in cooling consumer prices and loosening the labour market even as GDP growth rebounded solidly at the start of the year.
Canada said headline CPI slowed in February, to 2.8% y/y, missing the 3.1% forecast and a tenth below January’s 2.9%. Excluding gasoline, the prices slowed to 2.9%, down from 3.2%. However, Statistics Canada said the price of rent and the mortgage interest cost index continued to apply upward pressure on the headline inflation.
“The last two inflation reports have delivered substantial progress towards the 2% inflation target, with headline CPI tracking well below projections from the January MPR,” TD Securities’ Robert Both posited, “but we still see an April rate cut as a tail risk given the impact of large one-off moves in recent CPI data and signs of stronger growth momentum over Q1.”
In January, GDP growth printed 0.6% following a 0.1% contraction in December. It should be noted that the rebound was down in part to colder than usual January weather in some areas of the country, which in turn boosted utilities output.
Oxford Economics said it expected February’s read to offset much of that surge. “However, we are still surprised to see StatCan's flash estimate for a 0.4% m/m rise in February GDP. On the surface, this suggests Q1 growth may be stronger than the moderate contraction we forecast.”
Last month the BoC released its updated Business Outlook Survey for Q1. The report effectively underlined the dampening effects on the economy of past hikes. Firms responding to the survey and the Business Leaders’ Pulse reported that business sentiment and sales growth expectations had stopped falling. But demand remained subdued, in turn this had led to decreasing price pressures and an easing labour market. As a result, fewer companies than in the previous survey were planning “unusually large or frequent price increases” over the next 12 months.
“We continue to expect the BoC will keep the policy rate steady at 5.0% until June when it will begin lowering the rate to 4.25% by the end of 2024,” Oxford Economics said.
Source: Rabobank
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- Central bank to remain on hold in April
- Rate-setters could signal an imminent move
- Cooling inflation, looser job market drive hopes
- Q1 economic activity could derail dovish steer
- Decision due Wednesday at 14:45 GMT/09:45 EST
- Press conference set for 15:30 GMT/10:30 EST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
8 April 2024
As far as monetary policy targets go, the Bank of Canada is seeing the kind of results it was hoping for when it commenced its most recent rate hike cycle. Yet, rate-setters are expected to tread carefully with any forward guidance that points to a drop in borrowing levels.
The Bank of Canada’s Governing Council is widely expected to leave its overnight rate on hold at 5.00% when it meets this week.
As well as the announcement, the bank is set to release its April Monetary Policy Report (MPR), and governor Tiff Macklem and senior deputy governor Carolyn Rogers will answer questions at the press conference set for 14:30 GMT/10:30 EST.
TD Securities predicted that the central bank would keep interest rates at current levels as it waited for more evidence the economy continued to track towards a sustained return to 2% inflation. “We see tail risks towards a strong signal of a near-term cut, and even a slim chance of an actual cut in light of CPI data,” it noted. “That said, our base case is that the meeting will not be a market mover and reiterate our call for a July cut (with risks to June) as things currently stand.”
Data since the last meeting on 6 March appeared to support the notion that policymakers had succeeded in cooling consumer prices and loosening the labour market even as GDP growth rebounded solidly at the start of the year.
Canada said headline CPI slowed in February, to 2.8% y/y, missing the 3.1% forecast and a tenth below January’s 2.9%. Excluding gasoline, the prices slowed to 2.9%, down from 3.2%. However, Statistics Canada said the price of rent and the mortgage interest cost index continued to apply upward pressure on the headline inflation.
“The last two inflation reports have delivered substantial progress towards the 2% inflation target, with headline CPI tracking well below projections from the January MPR,” TD Securities’ Robert Both posited, “but we still see an April rate cut as a tail risk given the impact of large one-off moves in recent CPI data and signs of stronger growth momentum over Q1.”
In January, GDP growth printed 0.6% following a 0.1% contraction in December. It should be noted that the rebound was down in part to colder than usual January weather in some areas of the country, which in turn boosted utilities output.
Oxford Economics said it expected February’s read to offset much of that surge. “However, we are still surprised to see StatCan's flash estimate for a 0.4% m/m rise in February GDP. On the surface, this suggests Q1 growth may be stronger than the moderate contraction we forecast.”
Last month the BoC released its updated Business Outlook Survey for Q1. The report effectively underlined the dampening effects on the economy of past hikes. Firms responding to the survey and the Business Leaders’ Pulse reported that business sentiment and sales growth expectations had stopped falling. But demand remained subdued, in turn this had led to decreasing price pressures and an easing labour market. As a result, fewer companies than in the previous survey were planning “unusually large or frequent price increases” over the next 12 months.
“We continue to expect the BoC will keep the policy rate steady at 5.0% until June when it will begin lowering the rate to 4.25% by the end of 2024,” Oxford Economics said.