Governor of the Bank of Canada Stephen Poloz is back in the saddle again Wednesday
- BoC policy decision due at 1400GMT
- Consensus is for cash rate on hold at 0.75%
But, CICB are betting their Poutine on a rate hike ...
After the blowout GDP figures, we now see little reason for the BoC to wait before hiking interest rates again. It is a close call, though, because of concern Governor Poloz has shown regarding currency strength.
- The statement could underscore that by pointing to still-tame core inflation and a firm Canadian dollar as a drag on growth. That might actually put an earlier stop to the Canadian dollar's run than having a hawkish message in September, but leaving the actual rate hike, and the message about what comes next, until October.
Alternatively, the Bank of Canada could get off the highway, and take the slower road by now, leaving rates unchanged in September.
- That's going to make for a tricky job writing the accompanying statement announcing no rate change, but using the same growth picture to justify a hike in an October announcement only weeks later.
- The September pause would help signal to markets that hikes will be gradual, but the statement's bullish picture on growth would have markets heavily betting on an October hike. By October end, with the appropriate language, in either route we would have the Canadian dollar only marginally stronger than it is now, short rates up a quarter point, but the market warned that further hikes will be slow in coming. Same difference. So why not get the message out early that a 1% rate is here to stay for a while?
