Bank of Canada wants to raise, will the data allow it? - Rabobank

The Bank of Canada left the key interest rate unchanged at 1.25% as was widely expected. According to analysts from Rabobank, the central bank maintained a cautious tone while highlighting its data dependency.

Key Quotes: 

“The BoC revised up its forecast for both GDP growth and CPI inflation this year and next but we see data more as a bad dream or a beautiful nightmare given the underlying picture is far less positive than the headline prints imply. In fact, we see the current drivers behind the rise in CPI inflation as likely to prove disinflationary further out.”

“Maintain our call for no further hikes this year. That said, we are cognisant that if data do not pan out as we expect then the Bank could well tighten further. The market is pricing in around a 92% chance of a hike by year end with a 40% chance that happens at the May meeting and a 70% implied probability of a July hike.”

“The BoC appears to be cautiously optimistic but remains data dependent and as such the Bank itself admits that the “pace of rate hikes is a considerable question mark”. To our mind, that leaves a Bank that wants to hike but we maintain the view that it might struggle to.”