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Livesquawk - BoC Tapers QE By A Further CAD 1bln
BoC Tapers QE By A Further CAD 1bln

The Bank of Canada’s followed through on expectations and kept its three main rates unchanged and announced a further reduction to its weekly bond buys.


The governing council held its target for the overnight rate at the effective lower bound of 0.25%, with the bank rate at 0.5% and the deposit rate at 0.25%. The bank tweaked the target pace of its quantitative easing (QE) programme from CAD 3bln down to CAD 2bln per week. It said the adjustment reflects continued progress towards recovery and the bank’s increased confidence in the strength of the Canadian economic outlook.

Economist’s View

Douglas Porter, Chief Economist and Managing Director at BMO Capital Markets said, “The Bank made few waves with its latest policy announcement and quarterly forecast, mostly landing right in line with consensus on almost all fronts (for a change). We expect the tapering process to continue apace, with the Bank winding down its QE by early next year. This will set the stage for rate hikes, likely within the next 12 months of the end of QE, with a good chance of sooner rather than later. The "later" risks would be driven by the virus, while the "sooner" risks could arise if inflation remains stubbornly high and/or if growth is juiced more than expected by well-supported consumers.


“Overall, while the perception is that the Bank is quite hawkish, especially compared with the Fed, we ultimately expect very little daylight between the two banks when it comes to rate hike timing. After all, the Canadian economy took a deeper hit in the past year, has more ground to make up, and is dealing with less frothy inflation than the U.S., partly due to a strong currency—hardly a recipe for a much more aggressive policy.”