The BOC set the bar low for growth, which will make it tough to undershoot
Central banking isn't so much about setting interest rates as it is about setting expectations.
How policymakers manage those expectations truly determines how markets react. By minimizing surprises and volatility, central banks can do more for an economy than they can by simply reacting to inflation.
That's why the Bank of Canada's growth forecast was the most important part of last week's BOC decision and MPC. They pegged this year at just 1.2%.
What makes that so tough is that January growth alone was 0.3% (not annualized). Even with the 0.1% contraction in Feb, the economy needs to growth just 1.0% for the remainder of the year to hit that target. And that's with a jump in commodity prices and the BOC repeatedly touting a stronger H2.
The consensus of economists is 1.5% and the details in Tuesday's GDP report including temporary weather-related weakness in transport and mining will be reversed, adding some upside risks.
In order to cut, the BOC would need to see growth tracking sub-1%, if not worse. It's not impossible but it's far less likely than the 50% chance of a cut that's priced into the market.
The dynamic is something that Reuters explores in a story that quotes yours truly.
