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BoC Preview: A pre-emptive cut - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 15, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Bali) - Charles St-Arnaud, North America Economist at Nomura, believes that the Bank of Canada will cut its policy rate by 25bp to 0.25% at next week’s meeting.

    Key Quotes

    "The Bank of Canada (BoC) holds its next policy meeting on 20 January. At the 2 December meeting the BoC left its policy rate unchanged at 0.50% and noted that “the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate”, suggesting a neutral policy stance."

    "Since the December meeting, it seems that on balance the new information received has been mainly on the negative side, suggesting further weakness in the economy. Moreover, as we noted it is becoming clearer that the Canadian economy needs some support."

    "It will be a very close decision at next week’s meeting, as the BoC can justify staying on hold based on the expected fiscal stimulus and the continued expectation that better growth in the US will support exports."

    "However, with oil prices having declined significantly in recent months, reaching their lowest levels since 2003, and indications that growth stalled in Q4, we believe that the Bank of Canada will cut its policy rate by 25bp to 0.25% at next week’s meeting."

    "The rationale is that it may be safe for the Bank of Canada to buy some protection against a worsening of the economic situation. The negative impact on the economy will be unambiguously negative and could be much bigger than seen before, and the delay in implementation of fiscal policy means that increased fiscal spending would not affect growth until Q3."

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