The Bank of Canada is set to leave its interest rate unchanged at 0.25% and is set to publish new economic forecasts at 14:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 11 major banks, regarding the upcoming announcement.
Governor Tiff Macklem will hold a press conference at 15:15 GMT and may comment on growing demand from the US, but concerns about a local housing bubble.
Ahead of the events, USD/CAD is trading around 1.26.
TDS
“We look for the BoC to reduce its GoC purchases from C$4 B per week to C$3 B per week while reaffirming that it does not expect to lift rates until 2023. However, in light of the much stronger-than-expected economic data over the last quarter, there is a risk of a more hawkish statement. We now look for the BoC to lift rates in October 2022.”
Capital Economics
“We continue to think that market pricing does not fully account for the shift in the Bank’s approach to policy setting under Governor Tiff Macklem, and its willingness to keep policy rates lower for longer. We think the Bank will surprise markets by sticking to its pledge to keep rates unchanged until 2023.”
RBC Economics
“The BoC will report an upgrade to their economic growth forecasts in the April Monetary Policy Report – the larger question is whether their forward guidance will be tweaked to flag any pull-forward in expectations for the first interest rate hike from exceptionally low current levels. We still anticipate restrictions will be more significantly and sustainably eased over the summer, and given that households have ample purchasing power to support a recovery when that happens, it would be difficult for the central bank to not revisit its timeline on when the economic damage of COVID-19 will be repaired. The latest Bank forecast assumed this will happen in 2023, about a year later than our own view of early 2022. We expect the pace of central bank asset purchases will be reduced (as is widely expected). That, if anything, represents a modest easing off the monetary policy accelerator rather than tapping the brakes. We continue to expect the first interest rate hike will come earlier than the central bank has been flagging, but still not until the second half of next year.”
NBF
“While the policy rate will remain anchored at the effective lower bound, we expect to see a reduction in the weekly size of the Bank’s QE purchases. The taper is likely to be accompanied by a modest terming out of the Bank’s remaining purchases. A fresh Monetary Policy Report should feature a set of economic projections subject to significant upward revisions relative to the Bank’s prior guidance. Importantly, the stronger growth outlook should result in the BoC projecting output gap closure in 2022, rather than earlier 2023 guidance. To that point, we’re likely to see a change to the Bank’s forward guidance on the policy rate which is currently predicated on slack being absorbed in 2023. Either the Bank will guide to earlier (i.e. 2022) rate hikes or we may see a change in the structure of its forward guidance to afford the Bank more flexibility on adjusting the overnight target over the next couple years.”
ING
“In Canada, we will see a big jump in annual inflation, which follows on from some good activity and employment numbers. This means that there is a strong chance we see another tapering of the BoC’s QE purchases, which have already been cut from C$5 B per week to C$4 B per week although actual interest rate increases remain some way off.”
BBH
“Rates will remain unchanged while updated macro forecasts will be presented in the quarterly monetary policy report for this meeting. Since the economic data have come in very strong since then, many are looking for tapering to start at this meeting. If not, then all eyes will focus on the next meeting on June 9. The loonie tends to strengthen on BOC decision days. Of the 12 dating back to the start of 2020, the currency has weakened on only three of them.”
CIBC
“That more-than-halving of the deficit, and the resulting drop in issuance, is why the BoC will announce a C$1 B/week reduction in its weekly government bond purchases, lest it overrun supply and end up owning too much of the outstandings. Moreover, the recent stability in yields, and a modest schedule for its maturities, imply that the Bank could do an even larger tapering without much consternation from investors or a turn to falling overall holdings of GoC bonds. If its sticks with only a C$1 B taper this month, it won’t be long before further reductions are forthcoming. The Bank might not like the optics of calling for a 2022 rate hike while experts are calling for deeper lockdowns, and the ability of vaccines to cope with new variants is at least a question mark. If so, it might well opt to lower its projections for the next couple of quarters, or nudge up its estimates for potential GDP, just enough to stick with the rate hike in 2023 story for a bit longer.”
BMO
“We look for the BoC to further slim QE buying, on technical grounds alone. The fact that global bond markets have calmed in recent weeks should give the Bank added comfort to proceed with less aggressive bond-buying. And, finally, the scalding housing market may also play into the decision to taper. After all, if tapering leads to slightly firmer long-term bond yields, that’s a much more acceptable outcome with housing markets on fire.”
MUFG
“We expect the BoC to cut its weekly purchase rate from C$4 B to C$3 B. This is very well priced and is unlikely to result in any market reaction. Hence policy guidance and general tone will be key. There is some risk that perhaps to compensate for the tapering, the BoC will emphasise its caution, especially given the covid pick-up and given probable concerns over a currency overshoot. This may prompt some short-term further under-performance but as above, we do not expect this to last given the scope for a more vigorous recovery in Canada remains very clear.”
Citibank
“The recent rapid increase in new virus cases and subsequent new closures of businesses have now complicated the outlook for this week’s BoC meeting, with additional complexities around forecasts and guidance in the policy statement.Our base case is for asset purchases to slow to C$3 B per week (down from C$4 B), with a dovish characterization around the start of tapering given new headwinds to the recovery. However, in the policy guidance, the team expects a removal of the reference to a closing output gap in 2023. All-in-all, we expect a slightly hawkish outcome, as the change to the policy guidance could take more market participants by surprise.”
Rabobank
“We expect the BoC to leave the policy rate unchanged at 0.25%. The BoC is likely to maintain strong forward guidance and we expect the policy rate to remain at 0.25% at least through to the end of 2022. We expect a reduction in the pace of asset purchases from a minimum of C$4 B a week to C$3 B a week with the risk skewed to an even slower pace. The Monetary Policy Report is likely to reveal an upward revision to both GDP growth and CPI inflation and we expect the statement to walk the thin line between a faster recovery and lingering concerns given recent lockdowns. We maintain the view that USD/CAD will primarily trade in the 1.25-1.27 range for the remainder of Q2.”
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