Notes from the Desk – Bank of Canada Meeting – Much Ado About Nothing
The Bank of Canada (BoC) held rates steady at 5% this morning. Although Governor Macklem reiterated that he believes rates are high enough, and that the real question is how long the BoC sits on its hands before cutting.
The Press Conference.
- The Governor pointed out that the BoC needed to see consistent evidence that inflation was easing towards 2%. He dashed the hopes of a few pundits who hoped there would be some clarity on which of the many inflation measures the BoC preferred, by stating that they looked at inflation in many different ways.
- We thought the most important insight into the Bank’s concern was when the Governor pointed out that even when housing costs were ignored, roughly 45% of the items in the CPI basket had prices rising at 3+%. When inflation is around 2%, roughly 25% of items in the basket experience above 3% price growth.
The implications.
The Bank of Canada remains data-dependent and would like to see more evidence that inflation is subsiding (CPI data, wage growth moderating). Today’s announcement did little to change the opinion of bond traders who believe the first cut is coming in June or July. As such, bond yields are little changed.
