On the strength of recent economic data, including today’s latest jobs report, economists are no longer expecting a central bank rate cut next week.
In a research note, National Bank Financial (NBF) says it has now backed off its call for another rate cut next week. “After a data-packed week which saw GDP, trade and employment beat expectations, we no longer expect the Bank of Canada to reduce its policy rate next week,” it says.
NBF notes that, while certain data, such as first half GDP and commodity prices, may have been weaker than expected by the central bank, other economic indicators have held up relatively well. “The August Canadian employment report released this morning was the last major piece of information that may have swayed the Bank of Canada,” it says, adding that “surprisingly strong gains in full-time employment and in Western Canada” will keep the bank from cutting rates next week.
Indeed, none of the major bank economists are expecting a rate move next week. BMO Capital Markets says that it won’t completely rule out another rate cut, as “Governor Poloz has proven to be unpredictable.” But, it adds, “the body of evidence since the last meeting points to no move.”
“Even so, the turmoil in global financial markets, heightened worries about emerging market growth (China in particular), and lower-than-projected oil prices will be highlighted, giving the statement a dovish tone,” BMO concludes.
TD Securities also indicates that it expects the Bank of Canada to maintain its overnight rate, saying, “With economic activity unfolding largely as expected, there is less urgency for the Bank to move next week.”
However, it allows that the risks remain tilted to the downside. It also expects that “the Bank will remain quite cautious in its assessment of the outlook.” TD also says that it “cannot rule out another cut” at the bank’s October meeting, “if conditions deteriorate further.”
NBF is now forecasting that rates will remain unchanged through 2016. On the other hand, it sees a U.S. rate hike by the end of the year, followed by a succession of further hikes that will take the Fed Funds rate to 1.5% by the end of next year.