BOC monetary policy April preview

Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 14:00 GMT. Press conference will be held by Governor Poloz at 15:15 GMT.

Current policy measures–

• BOC is maintaining overnight deposit rate at 0.5%

Core objective of BOC monetary policy is price stability which means keeping inflation within range of 1-3%. Headline inflation has fallen close to 1% from 2.5% in 2014 in October last year. Since then it has risen sharply to 2% in January. In February reading came at 1.4%.

Economy at a glance–

• Canada is very small economy of $1.78 trillion approximately, compared to its larger neighbor US.
• Canada suffered technical recession last year as GDP contracted in both first and second quarter. As of December, annual GDP growth rate has dropped to 0.5% from 3.1% a year ago.
• GDP growth now stands at 0.8% annualized.
• Recent recovery in oil price may not be much of a boost, as Canadian Dollar rose sharply along with oil.
• Unemployment ticked up recently to 7.3%, compared to pre-crisis level of 6%. However, in last reading it dropped to 7.1%.

Return of growth in US is expected to help Canadian economy as a whole.

What to watch out for –

BOC is expected to keep policy on hold today. Focus will be on what the bank’s take on recent appreciation in exchange rate.

However at least another rate cut is expected in 2016 from BOC if situation worsened in oil front.

Some changes in communication would be vital to watch for -

• Changes in inflation expectation ahead. Higher or stable expectation would indicate a longer rate pause by the bank.

• Outlook for oil price and impact on the economy.

• Changes in growth forecast ahead and views on ailing manufacturing.

Impact –

• Canadian Dollar has appreciated and reached all of our targets around 1.35, 1.32, 1.3 and 1.285. Next in line is 1.17 area. Canadian Dollar is currently trading at 1.28 per Dollar.