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Following the monetary policy meeting, the Bank of Canada decided to keep its key policy rate at the lower effective bound of 0.25%, as expected. Analysts at the National Bank of Canada point out the statement didn’t really come with any surprises, reflected in the relatively muted market response. They will be watching Tiff Macklem’s speech on Thursday for any more policy insights, buy they don’t expect any surprises either.

Key Quotes:

“Today’s statement was expected to be a quiet affair with (a) no press conference; (b) no MPR/updated economic projections; and (c) the Bank having introduced more explicit forward guidance at the July meeting. Evidently, a largely non-descript statement is what we got. The Bank acknowledged that the economic recovery has gotten off to a stronger start than thought as recently as July but noted that tremendous uncertainty still lingers. In this context, withdrawing stimulus anytime soon would be a premature decision and one that is not likely to materialize. As Governor Tiff Macklem noted back in July, the policy rate will remain at the effective lower bound for at least two years.”

“There’s little more that the Bank is likely to provide in the way of direct monetary stimulus especially with negative interest rates firmly off the table. This can be demonstrated by the Bank’s removal of the pledge to “provide further monetary stimulus as needed”. As we move towards 2021, markets may look for better guidance on the Bank’s Government of Canada bond purchases to clarify what the economic recovery being “well underway” looks like in practice. Should term rates move decisively higher, we could see a move to yield curve control à la Japan and Australia though we’d judge this to be premature at this juncture.”