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VIEW: National's Call For The BoC Pausing

CANADA
  • National Bank are in the minority of analysts forecasting a ‘no change’ decision but don't dismiss that there are valid reasons to expect the BoC to pull the trigger and hike further.
  • The BoC’s new data dependent guidance ended up muddying the water even more given strength in some corners of the economy (labour markets) and weakness in others (housing, business sentiment).
  • Importantly, the intervening period since December’s meeting has, on balance, been positive from an inflation normalization perspective. National think inflation is normalizing quickly enough and are very cautiously optimistic the BoC will agree.
  • The resilience in the jobs market to date combined with easing inflation should be celebrated as it means a soft-ish landing is in reach, not that rate hikes must continue until job losses are seen.
  • Inflation expectations in the BOS don’t scream for a pause with the 2Y outlook barely budging but more weight is put on long-term expectations remaining anchored (for businesses and consumers, but more importantly financial markets).
  • An updated MPR will usher in a more tepid inflation profile which shouldn’t argue for more rate hikes than had been priced three months ago.
  • A tinge of data dependence is likely to be retained but we could see the Bank introduce language to make the bar for additional hikes even higher. This may come via an acknowledgement of significant tightening to date and/or an explicit recognition of the lags with which policy operates.
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