IRAN: Israeli Senior Official on Israel/Lebanon Negotiations

In light of geopolitical and energy market developments and ahead of next week's BOC decision, BofA analysts have changed their BOC call to see a hold in the overnight rate at 2.25% through year-end, versus their previous call for two 25bp cuts. They had been the last (as far as we are aware) analyst holdout for BOC rate cuts this year, with virtually unanimous opinion now that the overnight rate will end 2026 either at the same level or higher.

• They write: "Higher oil prices from the Iran conflict boost both Canadian growth and inflation, leaving the BoC little room to ease despite a soft domestic economy. While we do not expect rate hikes given anchored expectations and weak growth, the bar for cuts has risen meaningfully."
• They estimate that a sustained 10% increase in oil prices adds 30bp to GDP growth over the course of the year, and about 40bp to headline CPI (with smaller core passthrough).
• A final note is that the Middle East war could "end up facilitating the USMCA negotiations. With rising geopolitical tensions, the US is unlikely to want multiple fronts open simultaneously, while secure energy supply from Canada becomes even more strategically valuable."

The DMO has announced it will be looking to sell GBP4bln of the 4.125% Mar-31 Gilt (ISIN: GB00BVP99673) at its auction next Tuesday, March 17.

• MNI interviews former Boston Fed research director on monetary policy outlook -- On MNI Policy MainWire now, for more details please contact sales@marketnews.com