The Bank of Canada has developed a more optimistic outlook regarding its economic outlook. Heading into the latest meeting there were rumours of a very small rate cut mooted by market participants. However, these rumours were off the mark and rates were not only kept unchanged at 0.25% but the Bank of Canada updated growth forecasts.

Growth forecast revised

The end of 2021 growth was last seen at +4.6% vs +3.8% previously and Inflation was revised up as well to +1.5% vs +1.3%. The higher oil prices have also been helping the Canadian oil export economy and the latest OPEC decision means that oil should remain supported in the near term. Canada’s balance of international payments dropped for Q4 2020, but the way the data was calculated was impacted by COVID-19 as Statistics Canada mention on their site. GDP m/m was as expected at 0.1% vs 0.1% expected. New building permits came in very strong rising to 8.2%. The majority of these gains were for a single-family home.

Canada’s inflation in focus

Inflation is a little strange out of Canada too. In last month’s CPI report Statistics Canada changed the way they calculated CPI (inflation). They then had a further tweak of these changes and upgraded the inflation readings:

  • CPI common unchanged at 1.3%
  • Trim 2.0% vs 1.8% reported last week (and 1.6% exp)
  • Median 2.0% vs 1.4% reported last week (and 1.8% exp)

The bottom line is the picture about CPI is hazy in Canada right now and the next reading is March 17. Watch out for any further explanation on inflation this week.

Macklem was concerned about CAD strength, but not about inflation

In the last press conference, Governor Macklem was concerned about the rise in strength of the CAD. So, that will be an area to watch. When Macklem spoke on February 23 he brushed aside the rising housing market, downplayed the methodological change to the CPI data, and anticipates strong growth through H2 and into 2022.


There is a risk that the BoC gives a more optimistic outlook and that strengthens the CAD out of the meeting. Economists expect no change in rates this year or next. The next move is tapering of bond purchases for the BoC. Will they give any hints about that this week? EURCAD short could be a good expression of benefiting from that weakness, but the ECB is meeting this week too, so one for a hit and run.