*As seen in Risk In The Week report 01/20/23, cablefxm.co.uk/reports
Last month, the Bank of Canada lifted its overnight rate by 50 bps while it signaled more rate hikes were needed to curb inflation. In the statement, the central bank reiterated inflation was too high, however, signs of easing were noted while there were risks of inflation expectations entrenching. With the cost of money now at 4.25%, the Bank of Canada is now forecasting the economy to stall through the first half of 2023, real GDP growth is expected to ease to 0.90% vs a previous expansion of 3.30%. On the inflation front, the central bank sees prices accelerating by 6.90% in 2022 and 4.10% in 2023. More on this, core inflation three month rate of change has eased, the bank said this may be an early indication that price pressures are losing momentum. We were just updated on Canadian CPI, while the headline metric eased to 6.3% Y/y in December, core measures came in higher than expected and unchanged from the prior month. Analysts at CIBC expect the BoC to deliver a final 25bps rate hike next week, and while we are set to receive an updated MPR, they see minor tweaks on the forecasts. Heading into the release, CIBC says that diverging data between Canada and the U.S. is adding noise to local markets. They also see short-term expectations fairly priced in, so the bulk of the market reaction can be placed on expectations beyond H2. RBC notes that the Canadian unemployment rate remains near a record low of 5%, this is why they see the BoC delivering a last 25bps rate hike, however, they also mention that rates are high enough to cool down the labour market later in 2023.
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