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.”
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