CIBC On Tomorrow's BoC Decision

CIBC sees the BoC sticking with a hawkish but made-in-Canada pause

• Having pledged to pause on rate hikes to see how things unfold, Gov. Macklem has little choice but to keep Canada’s policy rate unchanged on Wednesday.
• Yes, there were conditions applied to that pause and warnings that hikes might resume, but only if there were evidence that the economy was diverging from the Bank’s forecast. A month or so of data can hardly be deemed to be sufficient to reach such a conclusion.
• Still, the market isn’t at this point convinced that this will be a lasting pause, and the Governor has shared his own doubts. In part, that’s a reaction to the upside surprise we saw in January’s employment data, which along with a rebound in GDP for that month, points to a renewal of growth to start the year. That said, while Q1 growth is likely to top the last BoC forecast, that won’t fully offset the downside surprise registered in Q4 data released this past week, and inflation also came in below expectations.
• This is still a hawkish pause, in effect. But it’s also a made-in-Canada pause that will be less influenced by the Fed than many think.