The Bank of Canada today left rates unchanged at 5.0%, as widely expected. The policy statement noted that “higher interest rates are clearly constraining spending: consumption growth over the past two quarters was near zero, and business investment has been volatile but essentially stable over the past year.” Incidentally, the BoC acknowledged the faster pace on the disinflation front, removing the reference to “slow” progress on inflation.
As a consequence, such considerations would likely have led to a more dovish tone in the policy outlook, but the BoC decided to reiterate the threat of further tightening of monetary policy: “The Governing Council is still concerned about the risks to the inflation outlook.” and remains prepared to further increase the policy rate if necessary.” Concerns about the inflation outlook come not only from potential external shocks (e.g. energy prices) but also from a resilient and tense domestic labor market, as confirmed by last week’s strong employment figures.
We remain convinced that the Bank of Canada will not tighten policy further given the deteriorating economic outlook and our expectations of a continued decline in Canadian inflation. However, there is likely an intention to fight the current dovish reassessment of rate expectations in Canada, and that means the BoC’s comments outside the meeting may be careful to send dovish messages to the market ahead of the meeting. January, when new economic projections will be published. being released.