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Analysts Stick To BoC Calls After Q3 Surveys

CPI is still to come tomorrow but Desjardins, RBC and TD continue to expect no further rate hikes from the BoC ahead of next week's decision. Recall that TD on Friday pushed back the timing of their first expected cut from Apr'24 to Jul'24.
  • Desjardins: Desjardins note an intensification of the “tug-of-war” between employers and workers in Q3, with firms believing “the labour market had eased further and that labour shortages were less of an issue” but with workers “pushing their wage expectations to record levels for the survey”. For the BoC, “consumers’ sticky inflation expectations are problematic. However, given that both businesses and households expect the economic environment to weaken, we don’t think there’s enough evidence to suggest that the economy requires higher interest rates” and expect a hawkish hold later this month.
  • RBC: RBC note that “the contrast between slowing economic activity and more persistent price pressures in Canada was apparent again” in the Q3 BoC surveys. “Elevated inflation expectations on the part of consumers and persistently abnormal price-setting behaviour reported by businesses will be concerning” for the BoC but it will be aware that inflation lags the economic cycle. “Our own base-case assumption is that the BoC will not need to hike the overnight rate further.”
  • TD: TD expect the BoC to stay at 5%, allowing past hikes to work through the economy “barring a significant upward surprise from the CPI release tomorrow”. Two-sided aspects of today’s BoC surveys. “One concern is that some businesses continue passing along the uncommonly large cost increases from earlier in the pandemic through to customers, potentially exerting upward pressure on consumer prices. On the other hand, according to the Bank's own research, the extent of the passthrough depends on the competitive pressures in the marketplace and the strength of consumer demand, both of which are becoming less favourable.”

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