The biggest issue for BoC policy is determining the hit from weaker oil prices, and the offsetting boost from a fallen C$/stronger US. Governor Poloz recently stated he expects front-loaded weakness and solid growth later this year. However, the latest Business Outlook Survey suggests the benefit from US demand and C$ weakness is “taking time to materialize” and may only occur “gradually in the future”. It is unlikely the BoC will acknowledge downside risks at their April meeting. Poloz will likely keep communication simple, reiterating that the January cut bought them time to monitor growth, with expectations that the economy will improve. But if growth disappoints, Poloz is setting up for an easy foray into dovishness later this year. So even with rates on hold in April, another 25bp cut in October possible as growth underperforms expectations.“We expect the BoC to hold rates at their April meeting after months of hinting that the bar for a near-term move is high. The BoC will likely toe the party line that a factory recovery will offset the energy-sector drag later this year. Although the BoC could cut its 1Q GDP growth forecast to 0.5% from 1.5% in the MPR, they will likely boost growth in later quarters. That would keep the timing of the closing of the output gap unchanged, suggesting no reason to ease policy at the April meeting.” – BofA Merrill Lynch said in a report on Tuesday
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