Notes from the Desk: Bank of Canada Meeting – Steady As She Goes
As expected, the Bank of Canada (BoC) remained on pause and kept the overnight rate at 4.50%.
Noteworthy:
- The BoC sees signs that higher rates are slowing growth.
- While CPI is still too high, recent data shows that core inflation is heading in the right direction.
- The strong labour market could keep inflation on the higher side, which is why the BoC is keeping the door open to resuming rate hikes in the future.
- The BoC showed no signs of concern with the CAD/USD FX rate, despite the recent losses incurred by the loonie in response to the prospects of US rates plateauing 75bps above domestic levels.
Implications:
- Canadian rates have risen in sympathy with the US market pricing in a higher terminal rate. We would not be surprised to see CAD yields reverse some of that move.
- With this decision date behind us, the direction of rates will now be driven by March’s inflation and employment data.
