Amid uncertainty around NAFTA (and Trump tariffs), and slumping economic data, The Bank of Canada was expected to ‘hold’ and endorse the two rate-hikes priced into the curve (notably less hawkish than the growing belief in The Fed’s four-hikes), and that is what it did.
However, BoC reiterated that continued accommodation is likely to be needed and added that it “remains cautious” and will be “guided by incoming data” in which case, sell the Loonie…
It has not been a good month for Canadian economic data…
BoC also acknowledged the recent deceleration in household credit growth (from record highs) and that trade is a “growing source of uncertainty” and flagged lower than typical wage growth.
Key Excerpts:
BOC reiterates that “Governing Council will remain cautious in considering future policy adjustments” and be “guided by incoming data” and adds that while economic outlook “expected to warrant higher interest rates over time, some continued monetary policy accomodation will likely be needed” to keep economy near potential/inflation on target”
Of note, “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks”
Some housing demand “pulled forward” into 2017 from beginning of 2018 ahead of new mortgage guidelines and other policy measures”
Impact of housing policies, changes to mortgage guidelines and new provincial measures on housing demand and prices will take time to fully assess: “Notably, household credit growth has decelerated for three consecutive months”
The BOC says it will be guided by data in assessing the economy’s sensitivity to interest rates, evolution of economic capacity and “dynamics of both wage growth and inflation”
“Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack”
Inflation close to target and core measures have edged up, “consistent with an economy operating near capacity”; inflation fluctuating due to temporary factors
The Loonie has been chopping around on Trump tariff and NAFTA headlines all week. CAD is little changed after the statement…
