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The Bank of Canada (BoC) holds its next policy meeting on Wednesday, 13th April. While no change in policy is expected, the central bank's new growth forecasts will be watched. The central bank is expected to keep policy rate unchanged at 0.50% and reiterate its neutral policy bias. The focus at the meeting shall also be on the Monetary Policy Report. The new government under Prime Minister Justin Trudeau has recently announced its new budget which includes substantial government spending and the report will include an analysis of the impact of the fiscal stimulus on the economic outlook.
"In terms of BOC expectations for Wednesday, while no change in policy is expected, the market is eager to see the central bank's new growth forecasts. The Bank of Canada may revise up its GDP forecasts in light of recent economic data and the more stimulative budget," said Brown Brothers Harriman in a report.
Statistics Canada reported last Friday that Canadian employment rose by 40,600 in March, well above MNI's median of 5,000 and compared to a decline of 2,300 in February. Also last week, Canadian building permits rose by 15.5% in February, erasing the 9.5% drop seen in January. Housing starts were 204,251 SAAR in March down from 219,077 units in February but above MNI's median of 190,000.
The Canadian economy has recovered notably from the oil price shock in late 2014, but the recovery has lost some momentum again towards the end of the year. The Bank of Canada (BoC) is attributing the slump in growth to temporary factors. The recovery of the Canadian economy is nonetheless likely to continue this year as oil price stabilises and US economy rebounds. At 1.4%, inflation is currently within the Bank of Canada's target band. Moreover, the risks for the inflation outlook remain balanced. Therefore, there is little need for the BoC to take action over inflation.
"We do not think the BoC is about to cut interest rates further; instead we expect it to await further developments on the oil price and see what impact this has on the Canadian economy. We expect the BoC to increase interest rates for the first time in summer 2017." notes Commerzbank in a report.
The Canadian dollar held a firm tone versus the greenback Monday, ahead of this week's Bank of Canada meeting. USD/CAD was trading at 1.2872 at 0915 GMT on Tuesday.
