BoC: On track for an October rate hike – NBF

Analysts at National Bank Financial notes that the Bank of Canada left the overnight rate unchanged at 1.50% yesterday and acknowledged the economy’s strong performance last quarter ─ recall Q2 real GDP growth in Canada was 2.9% annualized ─ but said the economy is evolving “closely in line” with its earlier projections.

Key Quotes

“The BoC downplayed the fact that headline inflation is above target, blaming gasoline and the airfare component of the CPI, and saying it expects inflation to move back towards 2% in early 2019 as the effects of earlier increases in pump prices dissipate.”

“The central bank instead emphasized the core measures of inflation (which remain close to 2%) and the fact that “wage growth remains moderate”.”

“The central bank was encouraged that “the rotation of demand towards business investment and exports is proceeding” and that the housing market is “beginning to stabilize as households adjust to higher interest rates and changes in housing policies”.”

“The BoC says the data “reinforce Governing Council’s assessment that higher interest rates will be warranted to achieve the inflation target”. However, it warned that it’s paying close attention to NAFTA negotiations. The central bank also noted the intensification of financial stresses in certain emerging economies which, for now, had limited spillovers.”

“The Bank of Canada made it clear that it is still on track to raise interest rates again this year.”