Posthaste: Bank of Canada expected to hold rates, but open the door to cuts

financialpost.com:

There’s not much doubt that the Bank of Canada will hold its interest rate tomorrow, but there is a lot of debate over how policy makers will sound.

It’s this tone, hawkish or dovish, that economists will be watching for hints on how long Canadians have to wait for rate relief.

Those in the dovish camp expect to see a change in the central bank’s forward guidance that points to the possibility of a rate cut in the near future.

The wording, according to National Bank of Canada economists Taylor Schleich and Warren Lovely, could go something like this: “If Governing Council sees further and sustained easing in core inflation, it may soon become appropriate to start dialling back the degree of monetary policy restraint.”

BofA Global Research also expects a shift to the dovish side and said it could come in the central bank’s statement or the press conference after.

“We believe the table is set for the BoC to start a cutting cycle,” said the economists led by Carlos Capistran.

Headline inflation came in lower than expected in January and February, falling within the bank’s target range and core inflation eased to 3.2 per cent.

The labour market has also helped build the case. The March report showed the economy lost jobs and the unemployment rate rose to 6.1 per cent, its highest level since the pandemic ended.

But there are a few flies in the ointment.

Services inflation is sticky, suggesting the bank will want to wait a bit longer to see a sustained downward trend in core inflation, says BofA. The resilience of wage growth also remains a concern.

Then there’s the economy, which exceeded expectations in January.  Oil prices, which have increased 16 per cent year to date, could further fuel this growth — and inflation, they