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Greg Gibbs, Analyst at Amplifying Global FX Capital, notes that the Bank of Canada removed from its statement  “some monetary policy accommodation will still be needed”, suggesting to the market that a rate hike is back on the table for the next meeting in July.

Key Quotes

“The probability of a 25bp hike from 1.25% to 1.50% on 11-July rose from 53% to 77% after the BoC statement.”

“The Bank reiterated that “higher interest rates will be warranted to keep inflation near target“, and added that it “will take a gradual approach to policy adjustments“.”

“It appears to be gearing up for some further normalisation in interest rates in July at what might be regarded as a gradual pace, after pausing for two policy meetings.”

“This would be the fourth hike in the current cycle, after back-to-back Jul & Sep hikes last year, and a third in January.”

“The statement was much shorter and indicated that the outlook was on track with its April MPR forecasts, with core inflation “near 2 per cent, consistent with an economy operating close to potential.”

“They continue to see growth running around 2%, modestly above potential.”

“The statement continued to say it would be “guided by incoming data“ and “The Bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity.”

“It reiterated risks from “ongoing uncertainty about trade policies“, and noted, “stresses are developing in some emerging market economies.” But it seems that recent events have not yet knocked the BoC view off course.”

“The statement helped CAD catch a bid, in-line with the broad rebound in commodity, EM, and European currencies.”