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The Bank of Canada (BoC) kept the policy rate unchanged at the lower effective bound of 0.25% offering no surprises. Analysts at the National Bank of Canada saw a somewhat optimistic take from the BoC, as they move to partially unwind some of the extraordinary support measures put in place at the height of the crisis.

Key Quotes:

“A somewhat optimistic take from the BoC, as they move to partially unwind some of the extraordinary support measures put in place at the height of the crisis. The market took notice, with the long end coming under pressure and the C$ getting a bit of a lift.”

“Note that Macklem participated as an observer in the discussions surrounding this rate decision, and “endorses the rate decision and measures announced”. Look for Macklem to more naturally make his mark with the July 15th rate decision, which coincides with a Monetary Policy Report, after there’s been more time to evaluate the evolution of the economic recovery, labour market health and the effectiveness of the Bank’s various asset purchase facilities.”

“Despite a tentative re-opening of the economy currently underway, in Canada and elsewhere, highly accommodative policy will be needed for an extended period to secure recovery. To us, that suggests holding the policy rate at the lower effective bound of 0.25% through the end of 2021, if not longer.”

“As many increasingly appreciate, substantial/sustained monetary policy accommodation will need to be married with meaningful and less-temporary federal/provincial fiscal stimulus should Canada truly desire to restore lost capacity in a post-virus world.”