Notes from The Desk | Bank of Canada Decision – Patience Young Grasshopper April 12 2023

Notes From the Desk – Bank of Canada Decision – Patience Young Grasshopper

 

As expected, the Bank of Canada (BoC) held rates steady at 4.5%.  They also updated their economic forecasts:

 

• Inflation is expected to fall to 3% this summer and to 2% by the end of 2024.
• Growth numbers were tweaked to reflect the stronger-than-expected Q1.

• • 2023: 1.4% GDP (previously 1%)
  • 2024: 1.3% GDP (previously 1.8%)
  • 2025: Unchanged at 2.5%

 

Noteworthy.

 

• Governor MacKlem believes that inflation can get to the 2% target without a deep recession or a significant rise in unemployment.
• The BoC maintained the option to hike if tight labour markets prevent inflation from falling.
• When asked about the potential for cutting rates, the Governor expressed that he did not anticipate cutting rates this year, despite the yield curve factoring in a cut for 2023.

 

Implications. 

 

• Yields are modestly higher today.
• Given the bond market is pricing in a cut later this year, we feel rates are vulnerable to moving higher on any upside surprises to growth or if inflation declines slower than anticipated.