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17 Apr 2013
Forex Flash: Will BoC overreact in rate cuts? – UBS
FXstreet.com (Barcelona) - Investors are clearly mulling the options for the BoC decision today, which look to be quite interesting – clearly the biggest surprise at the decision would be a rate cut. During the depths of the financial crisis, the overnight rate fell to 0.50% though the growth outlook was far more pressing at that point.
According to Research Analyst Gareth Berry at UBS, “Any rate cut could point to an over-reaction to the weak payrolls numbers from March, or more troubling aspects of the economy had been identified. It is the latter point where we would look for the biggest changes in the policy statement, which could point to rising risks of a rate cut up ahead and significantly alter pricing in the policy trajectory.”
Firstly, the global economic outlook might not be as rosy as indicated in the January MPR. 'Private sector demand gaining momentum' in the United States is a key pillar for the Canadian economy but March and April data is now putting this in doubt. Secondly, the situation in the Canada economy was described as 'constructive evolution of imbalances in the household sector'. Normally a central bank would define such 'evolution' as a slowing in debt accumulation, recovery in savings and exports while maintaining a healthy labor market outlook.
According to Research Analyst Gareth Berry at UBS, “Any rate cut could point to an over-reaction to the weak payrolls numbers from March, or more troubling aspects of the economy had been identified. It is the latter point where we would look for the biggest changes in the policy statement, which could point to rising risks of a rate cut up ahead and significantly alter pricing in the policy trajectory.”
Firstly, the global economic outlook might not be as rosy as indicated in the January MPR. 'Private sector demand gaining momentum' in the United States is a key pillar for the Canadian economy but March and April data is now putting this in doubt. Secondly, the situation in the Canada economy was described as 'constructive evolution of imbalances in the household sector'. Normally a central bank would define such 'evolution' as a slowing in debt accumulation, recovery in savings and exports while maintaining a healthy labor market outlook.