BoC no doubt will remain on hold – Deutsche Bank

In view of the analysts at Deutsche Bank, the Bank of Canada meeting is the main event this week and suggests that the BoC no doubt will remain on hold, but they anticipate a modestly more upbeat tone to the meeting statement and quarterly Monetary Policy Report (MPR).

Key Quotes

“Since the January 18 MPR, the unemployment rate (as of February) has declined another couple of tenths and is now back down to the post-recession low of 6.6%, first reached in January 2015. Note also that the labor force participation rate is up a tenth from where it was two years ago. To be sure, wage growth and hours worked remain soft. Hence, the BoC is likely to continue to note persistent excess slack in the economy. However, we would not be surprised for Poloz to acknowledge that the output gap may be closing at a modestly faster pace than anticipated in January. For example, January GDP was up a solid +4.1% annualized relative to its Q4 2016 average and domestic consumption has had a sturdy start to the year.”

“In addition, CPI median, which we view as most closely related to the old CPIX target metric, has been stable at 1.9% for the past four months. In turn, we expect the BoC to raise its 2017 growth forecast a tenth to 2.2%. Despite the recent slip in oil prices, headline CPI inflation should also be revised up a tenth to 1.9%. We do not expect any changes to the 2018 forecasts at this point.”