BoC meeting: May rate hike looks unlikely at this point - NBF

After today’s meeting, the Canadian central bank left interest rate unchanged. According to National Bank of Canada’s analysts, the Bank of Canada pointed toward rate hikes in the future but the timing is uncertain. 

Key Quotes:

“With above-potential GDP growth projected for the next three years, the BoC made clear that higher interest rates will be warranted over time, although “some monetary policy accommodation will still be needed to keep inflation on target”. 

“The no-change decision from the Bank of Canada and the 2018 growth downgrade were both expected. The consideration of recently announced provincial fiscal stimulus ─ the expected contribution of government to 2018 growth was indeed increased ─ was not enough to offset the weaker-than-expected start to the year, resulting in a net downgrade of the BoC’s 2018 growth forecast. But, like us, the central bank expects a growth rebound in subsequent quarters.”

“The press conference provided an opportunity for Governor Poloz to lower expectations of a spring rate hike. Of note, was the Governor’s statement that a positive conclusion of NAFTA renegotiations will not automatically trigger rate hikes.”

“Based on today’s message, a May rate hike looks unlikely at this point. That said, should the “data-dependent” Bank of Canada see upside economic surprises before the meeting of May 30th, e.g. monthly GDP, wage, employment and inflation, a change of stance remains possible. Recall that while the economy is currently at capacity, the overnight rate remains 175 basis points below the estimated neutral rate of 3%.”