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JPM: Not The Time For BoC To Proceed With Caution

CANADA
  • JPMorgan note that the Bank of Canada has its work cut out for it and with inflation showing signs of accelerating this is not a time for the Bank to proceed with caution.
  • The Bank has continued to signal aggressively hawkish sentiment - it wasn't anything new but Dep Gov Gravelle noted recently “we are taking actions to normalize our policy rate quickly and are prepared to be as forceful as needed.”
  • JPM expect the Bank to hike 50bp next week to leave leaving the policy rate at 1.50%, before a third frontloaded 50bp increase in July, believing the Bank is aiming to achieve a neutral policy rate of 2.5% by year-end.
  • Financial conditions have continued to tighten in recent weeks, with markets appearing to be pricing in more inflation risk and a responsive central bank as we expect.
  • Consumer sentiment fell further this week, with growing pessimism linked to increasing concerns about inflation while concerns around Covid are receding.
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