BoC: press conference was more dovish than the statement – Rabobank

Analysts at Rabobank explained that the Bank of Canada raised the policy rate 25bp to 1.50% as was widely expected.

Key Quotes:

“The Bank maintained a cautious tone while highlighting its data dependency, that said, this was not the ‘dovish’ hike many, including ourselves, expected.”

“We maintain the same view held before this meeting; the BoC has a bias to raise rates and will do so if the market is pricing it in but we doubt data will allow to do so again this year.”

“Headline data may be relatively upbeat but a scratch below the surface unveils a very different picture with consumers being squeezed by higher debt servicing costs and rising cost-push inflation, while we see the outlook for trade and investment as uncertain at best.”

“The BoC revised down its forecast for GDP growth this year by 0.1ppt to 2.0% while revising up the outlook for 2019 by 0.2ppt to 2.2%.”

“The BoC revised up its forecast for CPI inflation this year by 0.1ppt to 2.5% while keeping its 2019 forecast steady at 2.1%.”

“Governor Poloz did note the risk of a far greater shock to the economy should we see more tariffs (autos in particular) but suggested that they “can’t make policy based on hypotheticals”. This clearly presents a huge risk to the Bank’s current projections and stance.”

“The press conference was more dovish than the statement that accompanied the decision.”

“The new MPR forecasts can be seen in table 1 and the entire press release can be found at the end of this document with highlighted changes relative to April’s statement.”