BoC: Skip one hike one? - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, notes that in the BoC’s Governor Poloz speech on 27 June, he gave a strong hint that a hike was coming at the meeting this week. 

Key Quotes

“It’s a subtle shift, but the implication taken by the market and endorsed by Poloz in this speech was that, since the Bank had waited six months, by saying they are taking a gradual approach, it was time to hike again – probably this week.”

“However, if the Bank takes out “gradual” and reinserts “cautious” in the statement this week, you might conclude that the Bank is going back into a mini-hold and is not thinking it will raise rates again in the next six months or more.”

“However, if they retain “gradual”, you might conclude that they think another hike may be warranted in around three months (skip one – hike one). In which case, the statement should be viewed as somewhat more hawkish than what is currently priced-in to the market.”

“Our view is that the Bank is going to stay with “gradual”.  In other words, we think it is coming off a mini-hold that resulted in a six-month wait for the fourth hike this cycle, and it will suggest that it is heading into a period of a somewhat faster pace of hikes.”

“So I don’t expect them to shift back to “cautious”.  But if it did, the market might play the game and use it as a sign that a hike is off the table, until it is replaced again with “gradual”.”