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Wells Fargo: Risk Of BoC Hiking But Debate Should Be On Cut Timing

CANADA
  • Wells Frago see the BoC keeping rates on hold at 4.50% for the third meeting in a row, in line with consensus expectations.
  • Inflation dynamics in Canada have been mixed recently when it comes to the headline rate versus underlying inflation. While April's headline CPI ticked up to 4.4% Y/Y, the core inflation measures have receded compared to a year ago and have shown overall downward momentum over the past few months.
  • If inflation trends remain elevated and activity remains resilient, there certainly remains a risk the BoC will raise its policy rate further beyond 4.50%. However, in our view, the more relevant debate is how quickly the BoC turns to monetary easing in the quarters ahead.
  • With our expectation for the Fed to begin monetary easing in 2024, and with inflation in Canada slowing down steadily but gradually, we also now expect BoC rate cuts to be delayed until 1Q24, compared to our previous forecast for rate cuts to begin in 4Q23.
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