Rabobank’s Molly Schwartz and Christian Lawrence review the latest Bank of Canada (BoC) decision, noting policymakers kept the overnight rate at 2.25% in June. They highlight ongoing risks from high energy prices and prolonged inflation, alongside a technical recession. They argue structural weakness in durable goods consumption and investment limits scope for hikes, and expect the policy rate to stay at 2.25% through year end despite market pricing.

Policy on hold as structural risks build

"The Bank of Canada released its decision to hold the overnight policy rate at 2.25% at the June 10 decision."

"The Canadian economy is still facing the risk of high energy prices morphing into an environment of prolonged inflation, while a technical recession is stoking fears of deeper economic weakness."

"While Macklem and Rogers were reluctant to concede the gravity of the recent technical recession, we believe persistent weakness in durable goods consumption and poor gross fixed investment are indicative of structural weakness that cannot digest a hike at this juncture."

"We expect the Bank to hold the policy rate at 2.25% through year end, while the OIS curve suggests investors are pricing in one hike."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)