CIBC says the Bank of Canada's statement and MPR, as expected,
retains a "broadly dovish flavour", although the bias as before
remains broadly balanced between a possible rate reduction and
potential increase. Further stressing its continuing concerns about
inflation, downsides risks on that front are seen as having "grown
in importance." Offsetting that to some extent, the Bank has
slightly upgraded its near-term growth projections for the Canadian
economy. The risk from household balances has not materially
The Bank now sees GDP expanding by 2.5% this year, two ticks
faster than previously, while paring a tick from 2015, which is now
seen as coming in at 2.5%. Both those estimates are slightly
stronger than CIBC's own expectations.
CIBC notes the output gap is still expected to close over the
next two years. Core inflation is still seen as returning to
near-2% by late 2015, although performance in the near-term will be
weaker than expected previously, consistent with recent observed
performance. The policy section of the statement adds the sentence
that "the timing and direction of the next change to the policy
rate will depend on how new information influences the balance of
risks." CIBC says the reference to "direction" affirms the notion
that the Bank sees the risk of a rate cut as likely as an increase,
although CIBC has not changed its own view that the next move will
be an increase in the first half of 2015.
"Slightly supportive for fixed income given that change, and a
negative for the dollar although investors were expecting a dovish
statement, which may limit market reaction. Attention now shifts to
Poloz PC in just over an hour and key reports on retail sales and
consumer prices later in the week."
- Peter Buchanan, CIBC WM
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