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CIBC, Desjardins and RBC Still Expect BoC To Remain On Hold

CANADA
  • CIBC: In the near-term, inflation is more likely to accelerate slightly further than decelerate, given the further increase in oil prices in September. For Q3, inflation is likely to average around 3.8%, well ahead of the 3.3% forecast from the BoC’s July MPR. While that's partly because the July projection was based on WTI of $75/bbl, underlying inflationary pressures are also firmer than the Bank was probably expecting, with policymakers facing some tough decisions at upcoming meetings. If consumer spending remains sluggish and the unemployment rate continues to grind higher as we forecast, we still expect that the Bank will refrain from further interest rate hikes despite the strong current inflationary backdrop.
  • RBC: The economic backdrop has been showing clear signs of slowing (with a decline in GDP in Q2 and drift higher in unemployment in recent months.) That should signal that inflation pressures will ease going forward. But the BoC has one mandate - to target a 2% inflation rate - and today’s data took a significant step away from that. We expect the economic backdrop will continue to soften, and don't look for more interest rate hikes this year. But the central bank won't hesitate to hike interest rates further if inflation pressures don't show signs of easing.
  • Desjardins (follow-up): The acceleration in the core median and trim measures have shocked traders this morning, but the details aren’t necessarily as concerning. The pick up was largely driven by an increase in core goods price inflation. Indeed, the three-month annualized rate of core services ex shelter actually decelerated a touch. Given that the economy stalled in Q2 and labour market conditions have cooled off in each of the past five months, we continue to expect the BoC to take a very cautious approach to raising rates any further.
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