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Citi On Tomorrow's BoC Decision

CANADA
  • Citi see it as very likely that rates will remain unchanged at Wednesday's BoC decision given that economic developments have evolved “broadly in line with the MPR outlook”.
  • Any hawkish or dovish outcome will thus be a result of the updated policy statement. We expect a mostly neutral tone to Wednesday’s statement, although with slightly hawkish risks as it is very likely that the BoC sees a greater chance of having to hike again now than when they signaled a pause in January.
  • The statement should acknowledge softer than expected GDP growth but note this is consistent with activity moving largely sideways as intended.
  • Potential dovish adjustment: excess demand is moderating. Potential hawkish addition: noting that the 3-month measures of core inflation, while softer, are still running above the 2% target.
  • We still expect that the current global backdrop of higher inflation and higher rates than at the Jan BoC meeting should mean the BoC errs somewhat more clearly on the side of keeping the option of further rate hikes open.
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