BoC turns cautious, CAD turns down – BMO CM

The Bank of Canada held rates steady yesterday as widely expected, keeping the overnight rate at 1.0% after hiking in each of the two prior meetings, notes Douglas Porter, Chief Economist at BMO Capital Markets.

Key Quotes

“Also as expected, the Bank sounded considerably more cautious (even using that word) on the economic outlook versus the relentlessly upbeat tone of seven weeks ago. The critical quote in the Statement was: “While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate.” Not surprisingly, the Bank pushed up its 2017 growth estimate to match consensus at 3.1%, and up a tick in 2018 to 2.1%, but also trimmed 2019 a tick to just 1.5%, or back in line with potential growth.”

“The Statement highlighted all the risks — NAFTA, OSFI rule changes, weak exports, sensitivity of households to higher rates — reinforcing the view that the Bank will stay on the sidelines for a spell. In fact, in light of the unfavourable turn in NAFTA negotiations and the OSFI rule changes since the last BOC meeting, we have pushed back our call on when the Bank may now hike rates (to March from January) and the number of hikes next year (to 3 from 4).  Bear in mind that the issue with the January 17th meeting (with an MPR) is that it arrives potentially in the heart of NAFTA uncertainty and immediately following the OSFI rule changes (which kick in on January 1st). The Governor specifically cited the mortgage rule changes in the press conference as one of the factors for the Bank’s newfound caution.”