We look for the Bank to continue with its conditional pause on June 7, for the third consecutive meeting. A pause was first signalled in January amid a 25 bp rate hike that lifted cumulative tightening to 425 bps. The Summary of the Governing Council’s deliberations from the previous meeting (April 12) showed that the policy decision was between continuing to pause and a rate hike (corroborating the Bank’s tightening bias).
Even though we expect another pause, the debate between the two policy options will probably intensify at the June meeting, with the themes of “resilience” and “persistence” permeating recent key data.
A concern for the Bank is that if the economy’s most interest-rate-sensitive sector (housing) is starting to rebound, this could be an indication that policy rates are not yet sufficiently restrictive to restore price stability. Reflecting this, the market is currently pricing in close to a 30% chance of a June rate hike with the odds more than doubling for July and nearing 80% for the next couple meetings. We suspect emerging evidence of a mild GDP contraction will quash these expectations as the summer unfolds.
- BMO
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