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BoC: Shift of gears – Westpac

In view of Richard Franulovich, head of FX strategy at Westpac, the BoC has shifted gears this week, shedding their tightening bias and flagging notable downward revisions to global and domestic growth forecasts.

Key Quotes

“On the global economy the Bank notes the slowdown has been, “more pronounced and widespread than the Bank had forecast”, while on the domestic economy, “”¦the slowdown in the fourth quarter was sharper and more broadly based”¦it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.”

“As a result the Bank has jettisoned plans to return their policy rate to neutral; now asserting that the, “the outlook warrants policy interest rate that is below its neutral range”.

“Markets may be overdoing it pricing in a chance of a BoC cut by year’s end (20% probability), but that won’t change anytime soon; the BoC will take its time in assessing the depth and severity of the recent soft patch.”

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