April BOC MPR Today

The Bank of Canada meets today for its April Monetary Policy review and is widely expected to keep rates on hold. Looking at recent data shows a mixed picture for the Canadian economy with continued positive momentum in job creation and retail sales as well as wholesale trade and monthly GDP readings, but the weakness is merchandise trade, core inflation, and wage growth which has been stalled at 1.9% for the past four months.

Recent Data Has Been Mixed

The BOC are likely to acknowledge the better data prints up to mid-Q1 but should also highlight the weakness in some readings and the downside risks for inflation aligned to persistent slack in the economy, as highlighted by weak wage growth and sub-target core inflation. Essentially, the statement is likely to strike a mildly dovish tone and will likely be little changed from March.

Post-Decision Press Conference Will Be Key

The key focus of today’s meeting will be on at the press conference held after the announcement of the policy decision. Referring back to comments made recently by Governor Poloz, before the blackout period, the BOC chief downplayed the stronger growth data and stated that Canada still has room to grow faster because of its cyclical position, emphasising that Canada and the US are at different stages of the business cycle.

How Will The BOC Address Slack in The Economy?

Currently, the BOC expects the output gap to close by mid-2018 which requires above potential growth. This viewpoint is likely to be reiterated, confirming that the BOC are in no rush to follow the Fed. Updates on growth forecasts will be watched closely this time around with potential for some upward revisions given the better Q1 data.

Closely watched also will be how the BOC address the issue of slack in the economy, specifically how long they expect it to last. In the BOC’s January report they noted that they expected the economy to grow 2.1% in both 2017 and 2018, hitting full capacity by mid-2018 and traders will be keen to see if the bank now bring that timeline forward.