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Livesquawk - BoC Set To Leave Policy Unchanged As Economy Reopens
BoC Set To Leave Policy Unchanged As Economy Reopens

 

- Status quo expected for interest rates

- Next QE cut set for July, analysts say

- Outlook unfolding in line with staff forecasts

- Rate decision set for Wednesday at 14.00 GMT

 

 

By Harry Daniels

LiveSquawk News

@HarryDaniels71

 

8 June 2021|14.30 GMT

 

Canada’s economy is outperforming the forecast of the country’s central bank, with rate setters saying households and businesses are exhibiting “impressive resilience” despite the pandemic, and the national vaccination programme is ahead of schedule. However, do not expect the Bank of Canada’s monetary policy committee to announce any major tightening measures at the conclusion of its meeting.

 

The bank’s governing council is widely anticipated to keep its benchmark interest rate at 0.25% on Wednesday, and the quantitative easing programme is set to continue at a pace of CAD3bln a week. Policymakers are unlikely to signal a further reduction in the bank’s quantitative easing programme this month.

 

James Knightley of ING said, “We do not expect this policy meeting to deliver any substantial surprise for markets. After shifting to a hawkish bias at the April meeting, the data flow in Canada has on balance been neutral for rate expectations.”

 

The central bank has generally led monetary policy among the major global economies, and further tapering of its quantitative easing programme is forecast for July. The BoC has already enacted two tapers of a billion each, from CAD5bln a week down to CAD3bln currently.

 

“Even though a broadly unchanged policy message, we expect this upcoming meeting to pave the way for a third taper to CAD2bn in July with it reduced to zero by year-end,” Knightley said.

 

Pandemic recedes, for the moment

Canada’s daily Covid-19 cases have now dropped to levels last observed in September. The country had until recently suffered tight restrictions as major cities and municipalities were put at the highest pandemic alert level.

 

In his opening statement before the House of Commons Standing Committee on Finance (27 April), Governor Tiff Macklem struck an upbeat yet cautious tone: “With vaccinations progressing, we are expecting strong consumption-led growth in the second half of this year.

 

“With this improved outlook, we are hopeful that there will be less labour market scarring and lost capacity than we earlier feared, and we have revised up our estimate of the economy’s potential output.” He emphasised that “considerable uncertainty” remained as to the level of such output.

 

May’s labour force survey for Canada revealed that employment fell for a second month, weighed down by third-wave restrictions. Employment dropped 68,000 (-0.4%), while the unemployment rate was little changed at 8.2%.

 

TD Securities writes, “The June BoC Announcement should be a relatively quiet affair. Despite a weaker than expected Q1, look for the bank to argue that the outlook is unfolding roughly in line with their April forecast. We expect the forward-looking passage to signal 2022H2 rate hikes, and we do not expect any change in QE at this meeting.”