The Bank of Canada holds its much anticipated April meeting tomorrow.
The decision will come alongside a new Monetary Policy Report, which will include updated forecasts that take into account the new fiscal stimulus for the first time.
We expect the Bank of Canada to take a somewhat upbeat stance in its April meeting. While it is unclear how exactly the fiscal stimulus will factor into the BoC’s forecasts, the Bank is likely pleased that, unlike many of its peers, expansive fiscal policy may take some of the strain off of monetary policy.
As a result, we expect no change in interest rates tomorrow.
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Simply plugging in the Government’s estimates for how much the new budget will boost growth into the Bank of Canada’s own estimates would yield new forecasts of 2016 growth at 1.9% and 2017 growth at 3.4%, leaving growth essentially at potential in 2016 and above potential in 2017. But significant uncertainties remain over oil prices and the global economy. The transition of the economy requires patience, and while the fiscal stimulus may boost growth, the Bank may wish to wait for more evidence before signaling that rate hikes or cuts will be appropriate.