Bank of Canada to stay pat, statement to carry a “dovish tone”

The Bank of Canada is expected to keep lending rate at its near-record low level of 0.5 per cent on Wednesday, extending a freeze on the central bank’s borrowing level that began in July 2015. The September statement brought a dovish turn with the BoC unexpectedly introducing downside risks to the outlook, and the phrase is likely to be repeated again this month.

"The risk for the policy outlook remains tilted toward a cut, but the bar remains high for such a move,” said Benjamin Reitzes, senior economist at BMO Capital Markets.

The broader global economic backdrop hasn’t changed materially since the July MPR, and global financial conditions remain very accommodative, though sovereign yields have backed up since September. The latest macro-prudential housing regulatory changes may have a negative impact on growth.

The refreshed MPR forecasts will likely see a downgrade to 2016 growth. The inflation forecast will be trimmed as well, consistent with the latest downtick in core CPI. Governor Stephen Poloz may cut his current forecast of 2.2 percent growth for 2017, now above the consensus of 1.9 percent, and some analysts say he will push back his prediction for the economy to reach full output next year.