BoC: Heading back to neutral - AmpGFX

Sandeep Kanihama FXStreet Contributor

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that their view is that the evidence from the Canadian economy in recent months suggests that a gradual return to policy neutrality over the coming year is a reasonable base case forecast.

Key Quotes

“The Bank has estimated neutral policy rates to be between 2.5 and 3.5%. With rates at 1.25%, it has at least five 25bp hikes to get back to its neutrality estimate.”

“As such, it will still see that, after a hike this week, that policy is significantly accommodative, and project above-trend economic growth.”

“In the April MPR, the Bank assumed that there was some slack in the economy; but not much. It estimated that the output gap was between -0.75% and +0.25%.”

“While the unemployment rate is around a record low, the Bank thought there was still a bit of slack, and noted that wage growth was still somewhat below what it would normally be if there were no-slack.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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