Bank of Canada: A more cautious approach - Wells Fargo

The Bank of Canada kept its key rate at 1.25% at today’s meeting. The research team at Wells Fargo, noted that the BoC took a more cautious approach to adjusting rates in the face of softer economic data and geopolitical uncertainty.

Key Quotes: 

“The BoC maintained its overnight target lending rate at 1.25 percent at its April policy announcement, in line with consensus expectations. The BoC has increased benchmark rates three times since July 2017, most recently in January, but is taking a more restrained approach to further rate hikes.”

“Economic data came in somewhat softer to start 2018, giving space to hold off on further rate increases.”

“The BoC concluded its policy statement, which accompanies the rate announcement, with what we interpret as a dovish tone. It highlighted “some” progress on key issues of inflation and wage growth, which should warrant higher interest rates “over time.” However, the Bank also emphasized a “cautious” near-term approach, informed by monitoring the economy’s sensitivity to interest rates and economic capacity.”

“Core measures of consumer price inflation in Canada have edged up, and are currently right around the BoC’s symmetric 2 percent target. Along with resource constraints, higher gasoline prices and minimum wage increases this year in Ontario and Alberta are likely to be supportive of inflation over the near term. However, an inflation overshoot is not a large enough concern at this point to force the BoC’s hand in doling out faster rate increases. More significant right now than inflation are risks to the economic outlook posed by slower growth, elevated household debt and uncertainty over NAFTA. Given these considerations, we maintain our call for one more hike in 2018.”