17 Jul 2014
BoC: Probability of a rate cut very low - Nomura
FXStreet (Bali) - Charles St-Arnaud, North American Economist for Nomura, reviews the BoC monetary policy decision, noting that the Central Bank still believe that inflationary pressures are temporary, also highlighting BoC's downgrade to growth outlook, and that at this point, lower rates are very unlikely.
Key Quotes
"As widely expected, the Bank of Canada (BoC) left its policy rate unchanged at 1.00%. Also, we had expected the tone of the communiqué to be slightly on the dovish side."
"However, the BoC reiterated that its policy stance remains neutral saying that “the monetary policy stance remains appropriate and the target for the overnight rate remains at 1 per cent. The Bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks.”
"While the BoC removed its comment on the downside risks to inflation, it said that “recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamental,” suggesting that it remains concerned about inflation. This is in line with our view."
Overall, while inflation has increased meaningfully in recent months, the BoC believes, as expected, that it is not the result of broad inflationary pressures. Moreover, it has turned slightly more cautious on the economic outlook, downgrading its growth forecast.
"Our base case remains that the BoC will likely remain on hold until the end of the first half of 2015 and we believe the probability of a rate cut is very low and will only happen if growth falters."
Key Quotes
"As widely expected, the Bank of Canada (BoC) left its policy rate unchanged at 1.00%. Also, we had expected the tone of the communiqué to be slightly on the dovish side."
"However, the BoC reiterated that its policy stance remains neutral saying that “the monetary policy stance remains appropriate and the target for the overnight rate remains at 1 per cent. The Bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks.”
"While the BoC removed its comment on the downside risks to inflation, it said that “recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamental,” suggesting that it remains concerned about inflation. This is in line with our view."
Overall, while inflation has increased meaningfully in recent months, the BoC believes, as expected, that it is not the result of broad inflationary pressures. Moreover, it has turned slightly more cautious on the economic outlook, downgrading its growth forecast.
"Our base case remains that the BoC will likely remain on hold until the end of the first half of 2015 and we believe the probability of a rate cut is very low and will only happen if growth falters."