Going into the meeting STIR markets and economists were united in seeing no change from the meeting in terms of rates. The BoC had also stated in its previous meeting that it was moving to an ‘on hold’ stance. This was the case with rates staying at 4.50%. However, the meeting was always going to be first and foremost about the forward guidance and that was where the dovish hint came from. Remember, often in central bank language the omission or addition of a single word can signal a dovish or hawkish tilt.
A dovish signal
This is the language change that the BoC made by dropping the statement that the economy remained in excess demand. In January the BoC said ‘With persistent excess demand putting continued upward pressure on many prices, Governing Council decided to increase the policy interest rate’. On March 8 the BoC dropped that expression about ‘persistent excess demand’ putting pressure on prices. This takes the pressure off the BoC.
What to look for going forward
Canadian jobs data will be important as the BoC noted that the labour market remains very tight. In the central bank’s policy-setting high employment means inflation pressure. Inflation, of course, will be important. The headline inflation continues to move lower step by step from last summer’s peak.
The core was also lower for January at 5% down from 5.4% in December.
As long as this trend continues, the BoC will be able to maintain its ‘wait and see’ stance.
The key tradable opportunities, therefore, will come from any out-of-consensus prints in either employment data or inflation data in the coming days before the next BoC meeting. The CAD at an index level remains within a 3-month range. Read the full BoC statement here.