Search ForexCrunch

The Bank of Canada (BoC) is set to leave its interest rate unchanged in the first such event of 2021 and as we get closer to the release time, here are the expectations as forecasted by the economists and researchers of nine major banks, regarding the upcoming announcement. 

USD/CAD has been hovering around 1.27, with the loonie recovering from Biden’s plan to cancel the Keystone XL oil pipeline.


“Our base case is for the overnight rate to stay at 25 bps, with no change in either the QE program or forward guidance. While a marginally dovish BoC could rattle a well-populated CAD trade, limiting near-term USD/CAD downside, a broader USD snapback would threaten some high-beta currencies more.” 


“We don’t expect the BoC to announce any new measures on Wednesday. The vaccine-related hopes have fuelled the prospects of a quicker economic recovery, but the contagion picture in Canada has worsened of late and in general, there would be no reasons at this stage for Governor Tiff Macklem to sound any hawkish. In line with what we heard from Fed Chair Powell yesterday, the BoC may simply reiterate its lower-for-longer pledge. Accordingly, we expect CAD to be only marginally touched by the policy meeting.”


“With the economy still in need of stimulus amidst rising COVID-19 caseloads, and with policymakers reluctant to bring their main policy tool into negative territory, we expect rates to remain at the effective lower bound. Turning to QE, the current epidemiological context is not favorable to a reduction in weekly purchases. We, therefore, expect the central bank to leave its program unchanged for now. Though a slowing will eventually come (potentially March or April), QE should continue to be used through the rest of the year. The Bank’s latest Monetary Policy Report will also be available and could show a downward revision to growth projections in 2021, a change consistent with recent epidemiological developments in the country.”

RBC Economics

“The Bank of Canada’s first-rate decision of 2021 is expected to yield no change to its policy stance with the overnight rate holding at 0.25% and the quantitative easing program intact. Along with the rate decision, the BoC will publish the Monetary Policy Report which will garner more interest. We expect the bank to adjust their economic projections to show a steepening in the growth curve as escalating virus spread and containment measures make a major dent in near-term growth expectations while positive vaccine developments boost projections for the second half of the year.”


“There has been talking recently of a potential ‘mini cut’ from the BoC taking the policy rate down through 25bp to 20bp or 15bp. The front-end of the CAD OIS curve is suggesting this is a real possibility. We do not expect the Bank to go down this route and instead think 25bp will remain the effective lower bound where rates are anchored through 2023.”


“Odds of a 10-15 bp rate cut are probably higher than the market has priced in, given that the Governor has mentioned such a move as a possible tool in its arsenal. But our base case is for a stand-pat announcement on both rates and the $4 B/week pace for QE purchases. There will be some repetition of the BoC’s concerns over the near term outlook, with the Bank’s projections set to show a decline in Q1, and the risks to exports from an appreciating exchange rate. While highlighting an economic acceleration after mass vaccination starts in the spring, as well as a more pessimistic view than ours on the economy’s non-inflationary potential, the overriding message will be that stimulus will be warranted for a considerable period ahead.”


“Citi analysts are most curious to hear about any possible guidance around upcoming changes to monetary policy. Citi’s base case continues to be that the next adjustment to monetary policy will be to allow for a slower pace of weekly bond purchases later this year (possibly the April BoC meeting).”

Credit Agricole

“Our economist expects the BoC policy meeting to be largely uneventful. Indeed, we think that the BoC will maintain a stable outlook given that policy rates are at their lower bound and after the policy measures the MPC announced late last year to lengthen the average maturity of its QE purchases.”

Credit Suisse

“While no changes in policy are expected from the BoC today, Governor Macklem will likely be delivering a mixed message, as today’s rate decision also features a new Monetary Policy Report with a full upgrade of the Bank’s forecasts. As such, the message that will emerge from the Monetary Policy Report is likely to be one considerably improved expectations, perhaps even leading to a revision in the forward guidance. It is possible that the forward guidance might feature more open-ended language, which markets might take as a hawkish development.”