The Bank of Canada (BoC) holds its next policy meeting on Wednesday. At the October meeting, Governor Poloz surprised market during the press conference by admitting that “the Governing Council actively discussed the possibility of adding more monetary stimulus at this time, in order to speed up the return of the economy to full capacity.” Since then, not much has changed with the data since the October meeting continued to confirm that the economy is rebounding following the contraction in Q2 due to the impact of the wildfires on the oil sector. However, the underlying momentum in other sectors of the economy remains weak. Notably, non-energy exports continue to underperform and latest GDP data showed that domestic demand remains weak. Nevertheless, Gov. Poloz indicated recently that the economic situation has not changed much since October, suggesting the Communiqué is likely to be little changed.
We expect the BoC to leave its policy rate unchanged on Wednesday. We also believe that it will reiterate that risks on inflation remains roughly balanced.
We continue to believe that the BoC will leave its policy rate at 0.50% for some time, but risks could be slightly to the downside given the negative risks to growth coming from the election of Trump (se). Linked to this, the performance of non-energy exports remain key.
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