The TSX is up 68 points at midday, with miners (+2.23%) and energy (+1%), leading gains.
The Bank of Canada commentary today shifted from whether rates are restrictive enough to how long they need to stay at current levels. The Bank didn’t rule out more rake hikes if new developments push underlying inflation higher, but if the economy moves as it expects, then more hikes won’t be needed.
Royce Mendes over at Desjardins said Canadian central bankers appear to be waving the white flag on further rate hikes. But, they aren’t ready to celebrate just yet. “They’re still concerned about the stickiness in measures of underlying inflationary pressures. As a result, Macklem stated that he hasn’t completely ruled out further policy rate increases just yet.”
That said, Mendes noted the Bank of Canada no longer sees the economy as overheated. Desjardins continue to believe that rate cuts will begin as early as April. He added: “The economy is facing a set of unique challenges in the form of the rising impact of mortgage renewals, slower population growth and CEBA loan repayments. As a result, central bankers should be able to begin easing policy to a less restrictive stance in the not-so-distant future.”
TD Bank, in looking at the key implications noted while the Bank isn’t yet ready to signal a change in policy, markets were taking the lead. TD said odds are pointing to the first rate cut happening in April/June. “We echo this sentiment,” the bank said noting the BoC’s tight policy has caused the economy to flatline since last summer, which has quickly pushed the job market back into balance. TD noted even the BoC’s quantitative tightening policy looks to have potentially gone too far with market overnight rates continuing to drift from the Bank’s target rate. “With this alongside the realization that the BoC can’t set policy just based on elevated shelter inflation, it is clear that the central bank is getting ready to signal a rate cut in the coming months.”