📝 Markets Fail to Believe The BoC Is Done For The Year: TD Securities

The release of this week's fourth quarter GDP report likely brought some level of comfort to the BoC that is trying to slow down economic growth and inflation.

The Q4 stall in activity was a much softer performance than what the Bank expected in their January Monetary Policy Report (1.3%). It also undershot consensus, which was looking for a similar print. Part of the consensus call was probably conditioned on monthly, industry-based GDP data that was flagging a much stronger gain.

The Bank of Canada will deliver its interest rate decision on Wednesday, and given its recent communication of a (conditional) pause in January, there's almost no chance it deviates from that stance. However, markets don't agree that policymakers are quite done yet, with another hike fully priced-in by later this year. We view this week's flat GDP print as supporting our case that the Bank of Canada is done hiking rates. This view is conditioned on a continued cooling in inflation and softening in the job markets.

- TD Securities