UBS said it expects the Bank of Canada to hold rates at next Wednesday's April meeting and for the remainder of the year, given uncertainty in the outlook.
The same risks of trade tensions and Artificial Intelligence disruption remain, as does uncertainty over the outlook for tensions in the Middle East, writes the bank in a note to clients.
The latest Canadian data has been "mixed," states UBS. Energy prices pushed up headline inflation in March, core inflation moderated and the labor market is still subdued. The latest BoC surveys showed a tick up in near-term inflation expectations, but the bank predicts the relative stability in longer-term inflation expectations leaves the optionality in the outlook for rates firmly in place at the April meeting.
UBS forecasts the BoC continues to signal that there are several risks to the outlook, but policymakers remain ready to respond as needed.
Wednesday's press conference will likely feature questions on the risks to inflation with stronger headline inflation in March, while core inflation slowed, added the bank.
The balance of the inflation risks versus mixed activity and labor market data could also feature, according to UBS. With the shifts in inflation expectations in the latest quarterly surveys, Governor Tiff Macklem may note in his prepared remarks, or it could come up in the question-and-answer session, that the anchoring of inflation expectations is an important factor in assuming that the BoC can look through the energy-driven inflation.