FXStreet (Barcelona) – John Clinkard, Chief Economist at Deutsche Bank, notes that the recent soft output data in Canada has increased expectations for a BoC rate cut in its 15th July meeting, but Governor Poloz might wait for further evidence of slowing before easing again.
Key Quotes
“Given the decline in output in the April, and assuming that GDP strengthens in May consistent with the recent (May) gains in full time employment and hours worked, we now expect growth in the second quarter to be in the range 0.5% to 1% compared to our previous estimate of 2.0%.”
“Assuming that the economy picks up speed in the second half of the year, driven in large part by strengthening growth in the US, we expect growth for the year to be in the range of 1.0% to 1.5%.”
“There is no doubt that this unexpected drop in output in April and the implied increase in the output gap in the second quarter, together with the Bank of Canada’s rather itchy, rate cutting trigger finger, increase the likelihood that the BoC will cut another 25bpts at the upcoming policy rate announcement on July 15. However, given that this retreat in output was primarily due to a drop in energy output, the solid back to back gains in full time employment in April and May, the improving outlook for the US and the fact that core inflation is above 2%, we expect that Governor Poloz will not be buying more insurance (reference to the last rate cut) unless there is more evidence of a more broad based slowing in growth over the next few months.”
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