BoC reacts to strong data but remains preoccupied by NAFTA - NBF

National Bank Financial, Inc. (NBF) has come out with a report, offering afterthoughts on yesterday's BoC decision to raise key benchmark interest rates by 25bps to 1.25%.

Key quotes:

“A dovish interest rate hike from the Bank of Canada was always in the cards. The central bank, which previously said its actions are data-dependent, was forced to adjust its stance amidst strong data. But it tried to pare back expectations of additional rate hikes via cautionary language including concerns about NAFTA-related risks and uncertainty about inflation. The dovish spin was reinforced by the BoC saying that even though the output gap is closed, it still thinks “continued monetary policy accommodation will likely be needed to keep the economy operating close to potential”. Based on that statement, we expect a pause until late May, which will give the BoC some time to assess the impacts on the economy of slightly tighter policy, B20 regulations and NAFTA-related developments. But given our own outlook i.e. 2.5% for Canadian GDP growth in 2018, we continue to call for three additional rate hikes this year. We anticipate a stronger economy this year than what the central bank is calling, in part because of provincial fiscal stimulus (expected to be announced during budget season), the latter not fully accounted for in the BoC’s projections.”