BoC: To hike or not to hike? - ING
|James Smith, Developed Markets Economist at ING, suggests that a rate hike from Bank of Canada at its next meeting shouldn’t be completely ruled out, although there are risks – most notably Nafta.
Key Quotes
“Canadian Foreign Minister Chrystia Freeland has said that she still thinks a Nafta deal is possible, despite the recently imposed US steel and aluminium tariffs.”
“The key remaining sticking points for Nafta continue to be auto content rules, the ‘sunset clause’, government procurement, agricultural laws and dispute settlements. Our base case is that a Nafta deal will be made, although of course the big question is 'when'.”
“In terms of the Canadian economic environment, growth moderated in the first quarter but still remains robust and in line with the Bank of Canada’s forecasts.”
“Meanwhile, inflation is set to continue its bout of strength - markets are expecting May’s headline figure (released tomorrow) to come in at 2.5% year-on-year, riding the wave of higher oil prices.”
“Assuming this trend continues, the Bank will need to make a choice between maintaining its price stability mandate and offsetting ongoing trade uncertainty.”
“The next Bank of Canada meeting is due to take place on 11 July, the first gathering since it dropped its cautious tone back in May. Markets are pricing in a 67% chance of a rate hike, down slightly from around 80% earlier in June. Although the odds of a July hike are falling we don't think it should be completely ruled out yet.”
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