Bank of Canada defiant in its neutral bias – RBC CM

The Bank of Canada (BoC) was more neutral than expected in September, which trimmed the odds of a near-term cut, explained RBC economists. They see an implicit easing bias, though, and expect a move early next year.

Key Quotes: 

“We were expecting a dovish tone from the Bank of Canada in September given escalating trade tensions (identified as a key risk to the global and domestic outlook) since its July meeting. But the central bank sounded surprisingly neutral, giving no direction regarding future policy moves and simply reiterating that the current degree of accommodation remains appropriate.”

“in its economic progress report, the bank emphasized that it will set monetary policy based on domestic conditions, and that the Canadian economy is close to full capacity and inflation is right on its 2% target. That good starting point, along with monetary policy that’s already slightly accommodative, gives the central bank a buffer against negative external developments.”

“The BoC’s defiant attitude trimmed the odds of a rate cut later this year, and a move next January (our assumption) is seen as a 50/50 prospect.”