BoC: No further hikes coming – TDS

TD Securities analysts are no longer expecting further rate hikes from the Bank of Canada, meaning the overnight rate will top out at 1.75% this cycle.

Key Quotes

“Q4 GDP was the nail in the coffin, as the muted growth figures and expectations for sub-trend growth in Q1 imply an output gap that will not close before the end of 2020; our current tracking of Q1 growth sits at 0.6%.”

“Furthermore, recent developments suggest that homeowners are still struggling to adapt to higher rates, with existing home sales holding near a 7-year low in March while household leverage sits at a record high. Core inflation firmed to 1.97% in March but most of the move was driven by base-effects and we see little scope for further gains given the muted growth backdrop.”

“The labour market remains the one bright spot in the domestic economy, perplexingly, with the April LFS reporting monthly job creation of 106.5k which pushed the six-month average to 51k. Furthermore, wages have finally started to pick up off the lows with average hourly earning for permanent workers running at 2.6% y/y. While this should provide the BoC some comfort to remain on the sidelines as the market prices in cuts, it is not enough to keep the Bank on a tightening path.”