BoC to forgo rate cuts in March – BAML

FXStreet (Barcelona) - According to BofA-Merrill Lynch, with Poloz’s speech indicating that the January rate cut was sufficient “insurance” against the downside risks from oil, and oil prices currently near the assumption level, a rate cut by the BoC is highly unlikely in March.

Key Quotes

“Following Stephen Poloz's speech on 24 February, we expect the Bank of Canada to hold rates at the March meeting, rather than ease, which was our previous call.”

“Poloz did not explicitly provide forward guidance: that's not his style. Instead, he indicated the BoC felt comfortable with the 25bp cut in January, and since then, no new risks had emerged.”

“In particular, Poloz indicated the price of Brent oil today is roughly tracking the $60/bbl assumed in their forecast. Also, the data flow has had "some up and some down…nothing goes in a straight line", suggesting no immediate need for additional easing.”

“Most importantly, Poloz clarified the nature of the cut in January, stating that it was sufficient "insurance" against the downside risks due to falling oil prices. Thus, we see the BoC on the sidelines for now, watching the evolution of data.”

“This not-so-dovish view contrasts notably with the dovish emphasis on Canada's weak labor market as expressed by Carolyn Wilkins on 10 February, which triggered notable volatility in markets.”

“In our view, the two speeches are complimentary: Poloz's speech is a clarification that the BoC is not about to head out on a cutting spree. Wilkins' references to economic and inflationary downside risks signal that the BoC stands ready to ease again and take out some additional "insurance" if economic conditions warrant.”