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JPM Expect BoC To Remain On Hold This Month Absent Measurable Core Progress

CANADA
  • In contrast to Scotia at the higher end of consensus for headline CPI but seeing a very high bar to not cutting in July, JPMorgan are at the lower end but still don't see a cut until Q4.
  • JPMorgan project headline CPI easing to 2.6% Y/Y while core moved sideways at 2.9% Y/Y.
  • “That may not be quite enough progress for the Bank to feel comfortable cutting rates at consecutive meetings, particularly after Governor Macklem emphasized in a speech late last month that subsequent easing will proceed gradually.”
  • “We interpret that remark to suggest the Bank is not necessarily looking to ease in back-to-back meetings—although it remains data dependent—as it does not want to risk jeopardizing the progress to date toward price stability.”
  • “Markets are now pricing over a 70% chance the BoC will cut again later this month, which seems to put much more emphasis on the soft June Labor Force Survey than the hot May CPI report.”
  • “Absent measurable progress on core inflation [in June], we see the Bank instead remaining on hold. Our forecast does not have the BoC easing again until 4Q, but the risks for a September cut are rising, particularly with the Fed now expected to start its own easing cycle then. For the BoC to even consider cutting in June [should read July?], the sizable downside surprises seen in recent US CPI inflation reports would have to migrate north of the border next week.”
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