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Economists at RBC Capital Markets expect the Bank of Canada (BoC) to cut interest rates next week on the back of the negative economic fallout from the coronavirus. They warn that the impact in North America has yet to become apparent in hard economic data.

Key Quotes: 

“Central banks are increasingly expected to respond with lower interest rates. Markets are now expecting almost 100 bps of cuts from the US fed by this time next year.  We now expect the Bank of Canada to cut rates at their next scheduled policy decision on March 4th in response to the ongoing financial market meltdown with markets pricing in an even more aggressive move this year than the two total cuts we now expect.”

“To be sure, the negative economic fallout from the coronavirus in North America has yet to become apparent in hard economic data. But, for Canada, lower oil prices are already reducing economy-wide export revenue and the risk of the virus having a similar, even if still temporary, disruptive impact in other economies if it spreads too significantly will give central banks cover (if they felt any were needed given the pullback in financial markets) to cut rates pre-emptively.”

“We expect next week’s Canadian labour market report to show a small increase in jobs alongside a tick up in the unemployment rate but driven by higher labour force participation. Any upside surprise in the normally volatile employment numbers will probably be discounted by forward-looking coronavirus concerns, while any downside surprise will only reinforce expectations for the BoC to continue to ease policy.”