BoC is widely expected to keep overnight rate unchanged at 1.75% today. Back in March, the central bank has already shifted to a more cautious stance and noted outlook “warrant a policy interest rate that is below its neutral range”. Also, given the mixed picture ” it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook.” But after all, tightening bias was maintained and there was just “increased uncertainty about the timing of future rate increases.”
Since then, data have been mixed. Headline CPI rose to 1.9% yoy in March, sharply higher than February’s 1.5% yoy. Core CPI also picked up slightly from 1.5% yoy to 1.6% yoy. Median CPI rose to 2.0% while trimmed mean CPI rose to 2.1% yoy. Job data remained resilient too. However, BoC’s Business Outlook Survey (BOS) disappointed with the overall business index falling to -0.6% in 1Q19. The result pointed to “a moderation from previously high levels of domestic and foreign demand for firms in most regions”.
There are speculations that BoC could totally drop tightening bias, and indicate that rates will stay there for longer. However, the recent data might not be giving enough pressure for BoC to do it. Also, oil price has been in strong rally since WTI bottomed at 42.05 last December. The current picture, with WTI back above 65, is drastically different from that one in January. Thus, the anticipated neutral shift is far from being certain. BoC will also release new economic projections. Today’s announcement is a wild card.
Some suggested readings:
- BoC Meeting: Cautious, But Less Than Markets Expect
- BOC to Look Through Strong March Inflation and Maintain Dovish Stance
- Forward Guidance: Bank of Canada Will Officially Shift to a Neutral Bias Next Week
