TD Securities analysts note that January Bank of Canada minutes were broadly unsurprising and consistent with a slightly dovish tone. Policymakers see current rates as slightly stimulative but stress geopolitical risks and USMCA renewal uncertainty. Analysts highlight BoC’s desire to maintain optionality, expecting no rush to cut if growth softens and potential hikes only from 2027 if the output gap narrows.

BoC keeps options open on policy

"Nothing was too surprising in the January BoC Minutes, as details remained consistent with their slightly dovish tone from the meeting. As per the minutes, members agreed that rates are at the appropriate level, with the current rate on the slightly stimulative side of their neutral range and updated projections broadly in line with October's MPR."

"At the same time, the Bank continues to emphasize geopolitical uncertainty and noted the elevated uncertainty surrounding how the Canadian economy will adjust to those conditions. The Bank also reiterated that the upcoming USCMA renewal continues to be an important risk to the outlook."

"The key thing to highlight here would be members agreeing to maintain optionality in setting rates. If the near-term outlook does deteriorate, we don't expect a dash to cutting rates. However, if the output gap does narrow this year, they are likely to hold and start hiking in 2027. If it widens, whatever the reason may be, the Bank could start to re-consider cuts."

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