Here are the links to previews of the BoC monetary policy meeting today

And, this now via Scotiabank (bolding mine):

The BoC faces a balancing act between a near-term rate decision and communicating future policy optionality on Wednesday. Coupled with ongoing NAFTA headline risk ahead of the following week's round of negotiations in Montreal, these two considerations will be the dominant risks on the local calendar.

A hike of 25bps is expected on Wednesday when a rate statement, full Monetary Policy Report and press conference will be offered.

  • NAFTA risks slightly increase the possibility of no rate change.
  • When Governor Poloz delivered his mid-December speech, however, he removed NAFTA as one of his top concerns 'keeping him awake at night' and advised he'd deal with that risk if and when it became clearer while showing an unwillingness to put monetary policy decisions on indefinite hold. Every poker player plays the hand they've been dealt, not the one that might be dealt in the next round.

The broad underlying wage and price dynamics of the Canadian economy and excesses in the financial system should be the prime focus amid evidence the BoC is already behind the curve while trade policy uncertainty is expected to persist for an extended period. Businesses are not yet indicating material damage to their future plans stemming from this uncertainty- in fact they're signalling the opposite with rising concern about capacity pressures.

Overall, we feel that the central bank is likely to deliver a somewhat dovish hike on January 17th relative to market pricing for the following meetings in March and April.

  • To hike and warn of ongoing uncertainties may deliver somewhat softer overall financial conditions beyond just short-term rates as an offset.
  • It would also serve the purpose of boosting confidence through a steady hand on the wheel while retaining high optionality toward future decisions.
  • Indeed, unlike the September decision that had the street divided ahead of the hike that was delivered, this time Governor Poloz would find it difficult to say that some people got it right and some wrong if he didn't hike next week.

Markets and all economists at all dealers anticipate a hike this time around. The Governor would have to explain why he held off while a) probably caring little about market expectations, but b) after having just downgraded his NAFTA worries.


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