Good morning,

The Bank of Canada (BoC) officially held the overnight rate at 4.50% this morning for the first time in the past eight meetings. This met market expectations given the BoC messaging since the beginning of the year. Josh Nye, Senior Economist at Royal Bank of Canada reported this morning that ‘the BoC noted disappointing Q4 GDP growth (flat vs. an expected 1.3% annualized increase) but attributed the miss to a significant inventory drawdown. While consumption increased, the statement said restrictive monetary policy is weighing on household spending. Unlike the January statement there was no mention of “excess demand” in the economy, though the labor market “remains very tight.” The BoC took note of January’s surprisingly strong job gain and still-firm wage growth which is out of line with weak productivity. But overall developments—including further slowing in 3-month measures of core inflation—were seen as in line with the bank’s forecast for inflation to slow to 3% (the upper end of its inflation-control target range) by mid-year.”

It is important to note that while the BoC has paused on its rate hike cycle (for now), other central banks including the Fed and ECB are expected to raise rates further than previously expected earlier this year. Josh Nye went on to say that ” stronger near-term outlooks for growth and inflation in the US and Europe, as well as upside risks to the commodity price outlook from the reopening of China’s economy and the war in Ukraine. That has contributed to tightening global financial conditions and a stronger US dollar. There was no direct mention of the Canadian dollar, which on a trade-weighted basis is now at its lowest level since mid-2020. As the market has reassessed terminal fed funds, it has also priced in significant odds of one more hike by the BoC later this year. But today’s policy statement did nothing to endorse that view, and the market reaction has been mildly dovish.”

Please continue to call us with any questions that you may have or if there is anything that my team and I can do to assist.

Stay warm and have a great week.

Devin