As expected, the Bank of Canada (BoC) held rates steady this morning. Based on the accompanying statement and press conference, we interpreted it as a dovish hold.
The important bits.
- The Bank is comfortable that rates are at the right level to support the economy as it adjusts to US trade policy.
- The Governor reiterated that inflation remains contained as slack in the economy offsets cost pressures from trade friction, keeping CPI close to target.
- The recent improvements in labour markets are welcomed, but hiring intentions remain muted across the economy.
- When asked about the BoC’s outlook, the word de jour was ‘uncertainty’ .
- Fiscal stimulus (i.e., the new budget) should benefit the economy, but the impact will take time and depend on execution. Furthermore, the Bank does not expect the stimulus to put upward pressure on inflation.
The implications.
- The Bank is clearly on hold and more concerned with subdued economic activity than with inflation.
- After Friday’s employment report, traders began pricing in a hike next fall. When asked about this, Governor Macklem’s response was ‘traders decide what trades they want to make.’
- Bond yields are a few bps lower, as traders reassess what trades they want to make.
