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Jun 04 - 09:55 AM

Barclays: Contrary to Market Expectations, We Expect the BoC to Stay on Hold on Wed

By eFXdata  —  Jun 04 - 08:15 AM

Synopsis:

Barclays anticipates the Bank of Canada (BoC) will keep interest rates unchanged at the upcoming June meeting, taking a contrarian stance compared to widespread market expectations of a rate cut. They point out that it's a finely balanced decision, with significant implications for future monetary policy direction.

Key Points:

  1. Market Pricing and Consensus: The market is currently pricing in approximately 16 basis points of cuts, with a divided consensus slightly favoring a rate reduction.

  2. Recent Inflation Trends: Recent inflation data has shown substantial progress toward achieving the BoC's 2% target. Core inflation metrics are losing momentum, and headline inflation is aligning with the BoC's forecasts.

  3. BoC's Cautious Approach: Despite the favorable inflation trajectory, the BoC has expressed a desire to observe these trends for a longer period to ensure they are sustainable.

  4. July Meeting Expectations: Barclays predicts that the BoC will opt to wait until the July meeting to implement a 25 basis point cut. This delay would allow the central bank to incorporate the latest Monetary Policy Report (MPR) in its decision-making process.

Conclusion:

Barclays' analysis suggests the BoC will adopt a cautious stance at the June meeting, opting to maintain current interest rate levels. This approach reflects the central bank's intention to verify the durability of recent disinflationary trends before adjusting policy. The decision is closely contested, highlighting the complexity of the current economic environment.

Source:
Barclays Research/Market Commentary

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