Canada Economics Comment: BoC Remains on Hold and Characterizes Policy Stance as ‘Appropriate‘

Research evidence excerpt

Canada Economics Comment: BoC Remains on Hold and Characterizes Policy Stance as ‘Appropriate‘

noted that “war-related cost pressures are

still working their way through some consumer prices”, a slightly more hawkish

characterization than in the June statement (“ limited evidence of broad-based

pass-through”). That said, the statement also noted that “continued economic slack” is

having an offsetting effect (subtracting around 0.2pp from year-over-year inflation over

the next four quarters in the MPR) and maintained that “longer-term inflation

expectations remain well anchored”.

6. The policy section of the statement returned to pre-war guidance that the policy rate

is “appropriate”, in line with our expectation. The statement also removed reference to

the potential for “consecutive” hikes, although we view this change as mainly reflecting

the removal of scenarios from the MPR. The statement removed forward-looking

language that the Governing Council would “look through” the energy price shock, and

instead the opening statement stated that the Governing Council has “been looking

through the direct effects of higher oil prices on inflation, but the longer they remain

elevated, the bigger the risk they spill over to other goods and services”, a slightly

hawkish shift.

7. The message from today’s meeting was balanced overall. The characterization of

growth was balanced, acknowledging the signs of a pickup but emphasizing the risk that

this might not be sustained, while the assessment of the output gap was slightly dovish.

The characterization of inflation was little changed, although the upgrade to the

headline forecast was a hawkish development. The guidance continues to indicate that

the Governing Council intends to remain on hold at the lower end of its neutral range—