4 Dec 2014
The two-handed Bank of Canada – BMO
FXStreet (Barcelona) - The Bank of Canada statement was rife with “on one hand..on the other hand” phrases, emphasizing the Bank’s current “neutral” policy stance, notes the BMO Capital Markets Team, and highlight the two-handed statements of the bank.
Key Quotes
“The “U.S. economy has clearly strengthened, particularly business investment, which has benefitted Canada’s exports” (hawkish one hand), but “growth in the rest of the world, in contrast, continues to disappoint” (dovish other hand).”
““Canada’s economy is showing signs of a broadening recovery” as recent export, capex and job gains suggest “that the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun” (hawkish one hand). However, “the lower profile for oil and certain other commodity prices will weigh on the Canadian economy” (dovish other hand).”
“Recent stronger-than-expected GDP growth readings and upward revisions show “that the output gap appears to be smaller than the Bank had projected in the October Monetary Policy Report” (hawkish one hand), but “the labour market continues to indicate significant slack in the economy” (dovish other hand).””
“Even inflation prospects were balanced off. While “weaker oil prices pose an important downside risk”, this is offset by “a stronger U.S. economy, Canadian dollar depreciation, and recent federal fiscal measures.””
“Although Poloz & Partners dropped the use of a “bias” in October’s statement, we concluded back then that the Bank still sported a neutral bias with a dovish tint (the latter owing to a delayed output gap closure and its emphasis on the larger economic slack reading from the labour market).”
“Today, we conclude that the dovish tint persists but has faded a bit. First, while recent above-target CPI prints were again discounted owing to “temporary” factors, the Bank said this time that “underlying inflation has edged up” compared to these pressures being “muted” before.” Importantly, underlying inflation “remains below 2 per cent.” Second, there was acknowledgement of a smaller, conventionally-measured output gap.”
Key Quotes
“The “U.S. economy has clearly strengthened, particularly business investment, which has benefitted Canada’s exports” (hawkish one hand), but “growth in the rest of the world, in contrast, continues to disappoint” (dovish other hand).”
““Canada’s economy is showing signs of a broadening recovery” as recent export, capex and job gains suggest “that the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun” (hawkish one hand). However, “the lower profile for oil and certain other commodity prices will weigh on the Canadian economy” (dovish other hand).”
“Recent stronger-than-expected GDP growth readings and upward revisions show “that the output gap appears to be smaller than the Bank had projected in the October Monetary Policy Report” (hawkish one hand), but “the labour market continues to indicate significant slack in the economy” (dovish other hand).””
“Even inflation prospects were balanced off. While “weaker oil prices pose an important downside risk”, this is offset by “a stronger U.S. economy, Canadian dollar depreciation, and recent federal fiscal measures.””
“Although Poloz & Partners dropped the use of a “bias” in October’s statement, we concluded back then that the Bank still sported a neutral bias with a dovish tint (the latter owing to a delayed output gap closure and its emphasis on the larger economic slack reading from the labour market).”
“Today, we conclude that the dovish tint persists but has faded a bit. First, while recent above-target CPI prints were again discounted owing to “temporary” factors, the Bank said this time that “underlying inflation has edged up” compared to these pressures being “muted” before.” Importantly, underlying inflation “remains below 2 per cent.” Second, there was acknowledgement of a smaller, conventionally-measured output gap.”