The Bank of Canada kept its key interest rate unchanged at 0.25% as expected on Wednesday and announced a reduction on its weekly purchases. Analysts at CIBC see the meeting as a bit more hawkish than might have been anticipated, given the somewhat more aggressive upgrade to 2021 growth in particular.
Key Quotes:
“We see the Bank of Canada hiking in the final quarter of next year, but the Federal Reserve dropping its own pessimism even more dramatically, and hiking by Q3 of that year.”
“The Bank’s message today was in line with the copious hints it had dropped in speeches over the past couple of months. Of course, interest rates were kept unchanged for now. It announced a well-telegraphed moved to reduce the pace of bond purchases to $3 bn per week, matching our expectations. But it was willing to have this seen as a reduction in stimulus, citing “progress made in the economic recovery” rather than just technical factors like the need to avoid owning too high a share of the market, or the reduced government issuance ahead.”
“Overall, this was a bit more hawkish than might have been anticipated, given the somewhat more aggressive upgrade to 2021 growth in particular. The bond market was already looking for the Bank of Canada to hike rates in 2022, so it was moving in advance of the statement today, but yields moved higher and the Canadian dollar strengthened on the news.”
“The push to the loonie should at some point be reversed when the Fed also comes around to a more optimistic take, and a more realistic view on when inflation pressures could emerge in a US economy dosed with a much larger fiscal stimulus lift. We still see the US central bank as moving slightly ahead of the Bank of Canada as a result.”
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