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National Bank Financial’s analysis team suggests that in Canada, the central bank will take center stage this week as in addition to Wednesday’s interest rate announcement, the Bank of Canada will also release its Monetary Policy Report showing its latest economic projections.

Key Quotes

“Nobody should be surprised if the BoC’s 2019 GDP growth forecast for Canada is downgraded a tick or two from last January’s estimate of 1.7%, courtesy of a weaker-than-expected handoff from last year i.e. 2018Q4.”

“The Bank’s updated estimates of potential GDP will also be important given their implications for the estimation of the output gap. How dovish will the central bank be in its statement? Probably not too much, especially if it wants markets to reconsider any remaining expectations of rate cuts this year. While data hasn’t been stellar lately, there is reason to believe a rebound is in the works after the 2018Q4-2019Q1 slowdown, especially considering the rise of oil production and prices since then.”

“Moreover, even though its headline index fell sharply, the recent Bank of Canada Business Outlook Survey had positives including strong activity reported in the services sector. That’s not an environment calling for rate cuts. As such, we expect the central bank to remain in pause mode and reiterate the need to maintain the overnight rate below its neutral range.”

“On Thursday, February’s Survey of Employment, Payrolls and Hours from establishments (SEPH) will provide more information about the state of the Canadian labour market.”