Bank of Canada to cut the overnight rate?

There is little indication that a growth rotation towards capital spending and non-energy exports is taking place in Canada in the manner that the BoC had envisioned, particularly with real non-energy exports of goods declining on a year-ago basis. 

RBC is looking for the BoC to cut the overnight rate target by 25bp to 0.5% at the July 15 meeting. Weak Q1 GDP performance has persisted into early Q2, suggesting that the output gap has likely widened by 0.5-0.75% since the BoC's April forecast round. 

The Bank's 2015 growth projections will necessarily need to be moved lower, while any upward revisions will likely only emerge from mid-2016 onward. The end result should be a new projection for the closure of the output gap by early 2017 from the "end of 2016" previously.

"CPI is due on Friday, which we expect to be unchanged m/m in June", says RBC capital markets.