Data released on Tuesday showed that Canadian GDP rose below expectations during the first quarter. On Wednesday, the Bank of Canada (BoC) will announce its monetary policy decision. Analysts at CIBC point out that despite GDP figures, the central bank is still for a 50bp rate hike.
Key Quotes:
“Statisticians threw the Bank of Canada a soft curveball a day before it's policy decision, with GDP growth in Q1 coming in shy of previously released industry data and consensus expectations. However, the modest disappointment is unlikely to deter the Bank from hitting a double (50bp hike) at tomorrow's meeting, with economic growth over the first half of the year as a whole still tracking close to its April MPR projections, and inflation well ahead of previous expectations.”
“There were a lot of moving parts in today's report, but through all of the noise little has really changed for the Bank of Canada. The growth rate in Q1, while disappointing relative to heightened expectations, was still in line with the April MPR projections. For Q2, growth appears to be tracking in the 4.5-5% range, which would be only modestly below the 6% projected by the Bank in that previous MPR. As such, there is little to deter the Bank from another 50bp hike tomorrow, and likely a further outsized move in July. We forecast a deceleration in growth and inflation in the second half of the year, which will be the catalyst for the Bank to slow and then ultimately pause this rate hike cycle.