Economists will be watching for hints on how long Canadians have to wait for rate relief
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There’s not much doubt that the Bank of Canada will hold its interest rate tomorrow, but there is a lot of debate over how policy makers will sound.
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It’s this tone, hawkish or dovish, that economists will be watching for hints on how long Canadians have to wait for rate relief.
Those in the dovish camp expect to see a change in the central bank’s forward guidance that points to the possibility of a rate cut in the near future.
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The wording, according to National Bank of Canada economists Taylor Schleich and Warren Lovely, could go something like this: “If Governing Council sees further and sustained easing in core inflation, it may soon become appropriate to start dialling back the degree of monetary policy restraint.”
BofA Global Research also expects a shift to the dovish side and said it could come in the central bank’s statement or the press conference after.
“We believe the table is set for the BoC to start a cutting cycle,” said the economists led by Carlos Capistran.
Headline inflation came in lower than expected in January and February, falling within the bank’s target range and core inflation eased to 3.2 per cent.
The labour market has also helped build the case. The March report showed the economy lost jobs and the unemployment rate rose to 6.1 per cent, its highest level since the pandemic ended.
But there are a few flies in the ointment.
Services inflation is sticky, suggesting the bank will want to wait a bit longer to see a sustained downward trend in core inflation, says BofA. The resilience of wage growth also remains a concern.
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Then there’s the economy, which exceeded expectations in January. Oil prices, which have increased 16 per cent year to date, could further fuel this growth — and inflation, they said.
Another possible reason for the central bank to hold off is “fear of stoking a smoldering housing fire,” said Bank of Montreal chief economist Douglas Porter.
Home sales and prices appeared to stabilize in March’s early data and reports suggest there is a lot of pent-up demand.
The Bank of Canada also likely wants to wait for the federal budget, which will be tabled April 16, to see how fiscal policy might help or hinder its fight against inflation.
For many observers this all adds up to hold in April and a cut in June or July.
“With recent data showing sluggish economic growth, easing price pressures, and further weakening in the labour market, the case for keeping monetary policy unchanged is becoming more tenuous,” said Desjardins economists.
“The Bank of Canada (BoC) won’t be changing interest rates in April, but will be looking to signal that rate cuts aren’t too far off.”
CIBC chief economist Avery Shenfeld says the Bank of Canada can’t sound too dovish if they hold rates because some would question why they didn’t cut right now.
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“But given the pleasant surprises on inflation, the statement won’t close the door on a rate cut in June, with the bank signalling that they just need a bit more comfort that a softer underlying CPI trend is well in place,” he said.
Derek Holt, head of Capital Markets Economics at the Bank of Nova Scotia, is on the hawkish side.
“Developments since they last forecast back in January have just been too darn rosy relative to the BoC’s gloom in order to merit a dovish pivot any time soon,” he said.
One other thing you should keep an eye on tomorrow is the Canadian dollar.
A dovish turn by the Bank of Canada could shave a bit off the loonie, says BofA, predicting the currency will sink to 73.5 US cents.
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Bitcoin was dubbed ‘digital gold’ in recent months as values skyrocketed, but in reality it’s far from it, as today’s charts from Deutsche Bank show. Despite this year’s eye-popping rally, Bitcoin’s market capitalization remains less than an eighth of gold’s.
The digital currency did, however, overtake silver at one point.
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Bitcoin has been on a tear this year, after dedicated exchange-traded funds were approved by the U.S. Securities and Exchange Commission in January. It hit a record high of US$73,798 in mid-March, but has since fallen back about 9 per cent since as ETF demand cooled.
Bitcoin did beat gold on one score. Since SEC approval in January, inflows to ETFs have hit US$12.6 billion, a feat it took equivalent gold ETFs two years to achieve, says Deutsche.
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Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.
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2024-04-09 12:06:27Z
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