14-APR-2023

BOC REVIEW: The Bank of Canada left rates unchanged at 4.50%, as expected, and maintained language that it was prepared to do more on rates if needed to bring inflation back to target. The average GDP forecasts were revised higher for 2023, but down for 2024, while growth is seen picking up again in 2025. On inflation, the 2023 average CPI forecast was revised lower, while 2024 was left unchanged. The statement noted that getting inflation to 2% could be more difficult as expectations are coming down only slowly, while service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalise. The central bank also lowered its output gap estimate, though left its neutral rate view unchanged. At his post meeting press conference, Governor Macklem revealed that the Governing Council discussed whether it had raised rates enough, but said that the full work through of prior hikes was not yet done. Officials also considered the likelihood that rates may need to remain restrictive for longer to return inflation to target. The Governor also pushed back on market pricing for rate cuts, saying that does not look like the most likely scenario. Analysts at Oxford Economics now expect rates to be left unchanged throughout 2023, noting their CPI forecasts are aligned with the BoC, but they see much weaker GDP growth in 2023 than the BoC expects