Canada: no change on Wednesday, next hike on April - Rabobank

Analysts from Rabobank expect the Bank of Canada to leave rates on hold at 1.25% on Wednesday. They see another rate hike in April. 

Key Quotes: 

We expect the Bank of Canada to leave the policy rate on hold at 1.25% on Wednesday 7th March. This follows the 25bp hike seen in January and a total of 75bp since the 0.50% low was last seen back in July of last year. We maintain our long held view that the BoC will raise rates twice in 2018; at the January 17th meeting and at the April 18th meeting. The January meeting has of course been and gone and the Bank did hike rates 25bp, while the CAD OIS market is currently pricing in around a 33% probability of a 25bp hike in April down from 54% just a month ago.”

“Our forecast for GDP growth in 2018 stands at 2.2%; notably slower than the 3% pace of last year and a large part of that slowdown can be attributed to our softer outlook for housing and, more importantly, private consumption which we expect to grow at 2.6% in 2018 in contrast to over 3.5% last year.”

“Of course, the BoC’s comments are somewhat historical now and it is likely they will take a more dovish tone this week. That said, we question whether the market might have moved too far and we expect the Bank to leave the door wide open for an April hike. To this end, the recent sell-off in CAD will help the Bank’s cause given that USD/CAD stands over 3.5% higher than at the last meeting which is a kin to some easing on the rates side.”

“Domestic data have soured somewhat and NAFTA negotiations look set to drag out far longer than previously expected and could even continue into 2019.”