4 Dec 2014
Bank of Canada: cautiously optimistic - Nomura
FXStreet (Bali) - On balance, the statement from the BoC was slightly hawkish, in view of Charles St-Arnaud, Economist at Nomura.
Key Quotes
As widely expected, the Bank of Canada (BoC) left its policy rate unchanged at 1.00%. Also, as we had expected, the tone of the communiqué was relatively neutral. The BoC reiterated that its policy stance remains neutral, saying that “the balance of risks remains within the zone for which the current stance of monetary policy is appropriate”. The Bank also reiterated its concerns regarding household imbalances, saying that they “present a significant risk to financial stability”
On balance, the statement from the BoC was slightly hawkish, in our view. The communiqué makes it clear that developments in Canada have been better than expected. Moreover, the mention that the output gap is smaller than previously thought signals that the economy is likely to reach full capacity earlier than previously thought (expected by mid-2016 in the October MPR), and we believe that we should see further increases in underlying inflation in coming months. However, the BoC makes it clear that weaker commodity prices will be a drag on the economy. Nevertheless, overall, judging by the tone, the positive aspect will be more important. We continue to believe that the BoC will leave its policy rate unchanged until the second half of 2015, when we expect the BoC to hike its policy rate.
Key Quotes
As widely expected, the Bank of Canada (BoC) left its policy rate unchanged at 1.00%. Also, as we had expected, the tone of the communiqué was relatively neutral. The BoC reiterated that its policy stance remains neutral, saying that “the balance of risks remains within the zone for which the current stance of monetary policy is appropriate”. The Bank also reiterated its concerns regarding household imbalances, saying that they “present a significant risk to financial stability”
On balance, the statement from the BoC was slightly hawkish, in our view. The communiqué makes it clear that developments in Canada have been better than expected. Moreover, the mention that the output gap is smaller than previously thought signals that the economy is likely to reach full capacity earlier than previously thought (expected by mid-2016 in the October MPR), and we believe that we should see further increases in underlying inflation in coming months. However, the BoC makes it clear that weaker commodity prices will be a drag on the economy. Nevertheless, overall, judging by the tone, the positive aspect will be more important. We continue to believe that the BoC will leave its policy rate unchanged until the second half of 2015, when we expect the BoC to hike its policy rate.