BoC still expected to cut rates

FXStreet (Edinburgh) - In the opinion of analysts at BAML, the BoC could ease further its monetary policy via a rate cut later in the year (Q2).

Key Quotes

“Our forecasts remain unchanged, our economist continue to expect the BOC to cut the policy rate by 25bp later in Q2 and keep it on hold until late 2016, when we expect a slow policy normalization to start”.

“Our forecasts of longer-term rates also remain unchanged. Despite another cut, we would expect longer-term rates to increase modestly directionally with the UST market that should start pricing Fed policy normalization later in 2015”.

“There are risks on both sides of our forecasts. The key uncertainty continues to be the outlook for oil. A rebound in oil prices, contrary to our expectations, may prevent the BOC from additional cuts”.

“A more hawkish Fed policy, possibly due to stronger than expected inflation data, may also weaken the CAD to a point where additional BOC stimulus is unnecessary”.

“On the other hand, the Fed acknowledging greater risks and delaying hikes to 2016 has the potential to move rates below our forecast”.