"Having led the way to the sidelines, the widespread view is that the global banking sector strains will have locked (the Bank of Canada) there," said Doug Porter, chief economist at BMO Capital Markets, in a note.
All 33 economists polled by Reuters agree that the Bank of Canada (BoC) will hold its key overnight rate steady. Money markets are betting that the central bank's next move will be a cut. The BoC will also release its monetary policy report with new forecasts on Wednesday. In January, the bank forecast 0.5% annualized growth in the first quarter, but most analysts now expect it to be about 2.5% after flatlining in the fourth quarter of last year. "Were it not for banking sector turmoil, central bankers might have seen enough evidence to raise rates again," said Royce Mendes, head of macro strategy at Desjardins Group, in a note. The BoC will continue to warn that more hikes are possible, he said. Last month, Deputy Governor Toni Gravelle said the BoC was "ready to act in the event of severe market-wide stress" in the financial system while adding that currently Canada is nowhere near that point. That said, hedge fund bets against Canada's TD Bank Group last week hit $4.2 billion, making it the most-shorted banking stock globally, according to data provider ORTEX's calculations, with some analysts concerned about the bank's exposure to U.S. regional lenders.
"Hiking in this environment would put markets on high
alert," said Jay Zhao-Murray, FX Market Analyst at Monex Canada,
in a note.
Still, Canada's rapid population growth could lead to the
BoC raising its estimate of the neutral interest rate from its
current setting of a range between 2% and 3%, say analysts.
The neutral rate is the level at which monetary policy
is neither stimulating nor slowing the economy, so increasing
the estimate could indicate that the central bank expects rates
to eventually settle at a higher level than previously thought.
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Bank of Canada 'ready to act' in event of extreme market stress Bank of Canada Deputy Governor Beaudry to leave at end of July Bank of Canada seen on hold even as economy accelerates Canada Feb inflation rate slowest in 13 months, backing up rate
pause Canada's jobs market stays strong ahead of central bank rate
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(Reporting by Steve Scherer, Editing by Nick Zieminski)
