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National: Expecting More Dovish Tone But Unlikely To Completely Abandon Hiking Bias

CANADA
  • National Bank expect the BoC to leave the overnight policy rate on hold at 5% on Wednesday.
  • “At the Bank’s October decision, policymakers were concerned about persistent inflation and as a result, reiterated that they were prepared to increase their policy rate further, if needed. Since then, inflation pressures have softened, the unemployment rate has risen, and recent GDP data showed the economy was contracting in the third quarter.”
  • These developments may have “shattered any lingering probability” of a rate hike but “policymakers might not completely abandon their hiking ‘threats’ in a context where inflation remains above the 1-3% control band and is likely to remain there for a few months longer.”
  • “There should, however, be an explicit acknowledgement that earlier rate increases are having a material impact on growth and inflation and, generally, a more dovish tone should permeate the rate statement”.
  • “We could see the Bank remove their hiking bias in January and pivot to easing as soon as 2Q24”.
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