- The overnight rate was left unchanged at 1%, continuing a pause following back-to-back rate hikes in July and September.
- Recent domestic data, including a 1.7% annualized increase in Q3 GDP, have been roughly in line with the bank's forecast laid out in October.
- Gradual firming in core inflation was attributed to shrinking economic slack. Headline inflation has been a bit higher than expected though the bank seemed to chalk that up to temporary factors.
- They continued to note higher rates will be required over time but maintained quite a bit of flexibility in their tightening bias.
The Bank of Canada's tone was little changed after their final meeting of the year, once again serving up vague forward guidance with a side of caution. They noted firmer growth in a number of advanced economies, higher oil prices and easier financial conditions but continued to flag uncertainty surrounding the global outlook. Domestically, recent trends in investment, trade, infrastructure spending and housing were close enough to prior expectations. The bank may have been a bit surprised by the strength of consumer spending in Q3, which was attributed to robust employment growth. They didn't get overly excited about last week's labour market report though, noting some improvement in wages but still pointing to lingering, albeit diminishing, labour market slack.
Our forecast assumes the bank's cautious mindset will keep them on the sidelines until April. That will give them some time to evaluate the impact of this summer's two rate hikes. They'll also (hopefully) have a better idea of how one of the most significant risks facing the economy, the Nafta renegotiation, is evolving. Last week's jobs report had markets flagging potential for an earlier move, but with the central bank not sounding overly excited, we remain comfortable with our call.