Will BOC maintain policy interest rates unchanged during the July meeting
2023-06-30
■ The Consumer price index slowed down significantly in May, and the view of keeping the policy interest rate unchanged at the July meeting was dominant.
■ Even if the interest rate hike is temporarily postponed in July if BOC maintains a tightening attitude, explore this possibility again after September.
On the 27th, Statistics Canada announced that the year-on-year growth rate of the consumer price index (CPI) in May was 3.4%, slowing down from the previous month (4.4% year-on-year) and hitting the lowest level since June 2021. The Bureau of Statistics explained that the opaque sentiment caused by the situation in Russia and Ukraine has led to a significant increase in oil prices and other factors that have reverberated, driving down energy prices. The CPI increase is close to the forecast of the Bank of Canada (BOC), which previously predicted a slowdown to around 3% in mid-2023. The average increase rate of the median and pruning values that BOC values have also slowed to 3.8% year-on-year, gradually approaching the Central Bank target (1-3%). In this situation, the view that policy interest rates will remain unchanged will prevail at the next meeting in July.
BOC decided to raise interest rates by 25bps for the first time at three meetings on June 7th, with the policy interest rate rising to a 22-year high of 4.75%. The statement stated that "the strong personal consumption, service demand, and housing market recovery, as well as the excessive demand caused by labor market tension, may continue to exceed expectations, and "financial policies are insufficient to constrain the inflation target (2%) to continue to fall," and insisted on maintaining a monetary tightening attitude. Assuming that even if additional interest rate hikes are temporarily postponed in July, the possibility of interest rate hikes after September will still be preserved if the latest quarterly economic forecast and June employment statistics released on July 7th are robust. In addition, it is expected that the year-on-year growth of real GDP in April, announced tomorrow, will accelerate to a growth rate of 1.9%. In the short-term financial market, less than 50% of the decision to increase interest rates was made during the July 12th meeting, but the view that the policy interest rate ultimately reached a point (terminal exchange rate) of 5.00% remained unchanged.
■ Even if the interest rate hike is temporarily postponed in July if BOC maintains a tightening attitude, explore this possibility again after September.
On the 27th, Statistics Canada announced that the year-on-year growth rate of the consumer price index (CPI) in May was 3.4%, slowing down from the previous month (4.4% year-on-year) and hitting the lowest level since June 2021. The Bureau of Statistics explained that the opaque sentiment caused by the situation in Russia and Ukraine has led to a significant increase in oil prices and other factors that have reverberated, driving down energy prices. The CPI increase is close to the forecast of the Bank of Canada (BOC), which previously predicted a slowdown to around 3% in mid-2023. The average increase rate of the median and pruning values that BOC values have also slowed to 3.8% year-on-year, gradually approaching the Central Bank target (1-3%). In this situation, the view that policy interest rates will remain unchanged will prevail at the next meeting in July.
BOC decided to raise interest rates by 25bps for the first time at three meetings on June 7th, with the policy interest rate rising to a 22-year high of 4.75%. The statement stated that "the strong personal consumption, service demand, and housing market recovery, as well as the excessive demand caused by labor market tension, may continue to exceed expectations, and "financial policies are insufficient to constrain the inflation target (2%) to continue to fall," and insisted on maintaining a monetary tightening attitude. Assuming that even if additional interest rate hikes are temporarily postponed in July, the possibility of interest rate hikes after September will still be preserved if the latest quarterly economic forecast and June employment statistics released on July 7th are robust. In addition, it is expected that the year-on-year growth of real GDP in April, announced tomorrow, will accelerate to a growth rate of 1.9%. In the short-term financial market, less than 50% of the decision to increase interest rates was made during the July 12th meeting, but the view that the policy interest rate ultimately reached a point (terminal exchange rate) of 5.00% remained unchanged.