BoC Preview: Forecasts from eight major banks, no policy change expected

The Bank of Canada (BoC) is widely expected to keep its QE program and the policy rate of 0.25% unchanged following the September meeting on Wednesday 8 at 14:00 GMT. As we get closer to the release time, here are the expectations as forecast by the economists and researchers of eight major banks, regarding the upcoming announcement.  

In case the BoC delivers a dovish statement, the CAD is likely to weaken its major rivals, according to FXStreet’s Eren Sengezer.

ING

“BoC meeting won’t result in any policy changes ahead of the federal election, but softer data of late is unlikely to alter the BoC’s course, with policy normalisation well underway. Less supportive domestic drivers (BoC repricing, political uncertainty) may keep CAD capped in September, but we expect the overvalued USD/CAD to decline in 4Q.”

TDS

“The BoC will have to acknowledge that growth has fallen short of expectations, but the medium-term outlook should be constructive. We look for QE to remain at CAD2 B per week, with forward guidance pointing to the first rate hike in 2022H2.”

RBC Economics

“We expect no change in BoC monetary policy in September. Much more economic data will be available by the next meeting in October (when policymakers will also formally update their economic forecasts) but, all else equal, an announcement to taper central bank asset purchases at that meeting also looks less likely than it did a week ago.”

NBF

“The central bank’s monetary policy meeting should be a quiet affair, with no substantive policy changes expected and no new Monetary Policy Report to be released. While we expect the tapering of the QE program to be taken a step further in October, there are a number of reasons to believe it will be left untouched for now: (1) we’ve yet to see a taper at a non-MPR meeting; (2) the global outlook has weakened modestly in recent weeks on covid concerns; (3) Canadian GDP growth disappointed in Q2; (4) we have limited additional data on the labour market (there will be two more jobs reports published before October’s meeting); and (5) there is a federal election just 12 days after the BoC meeting which, to us, argues for the Bank standing on the sidelines. While the Bank may acknowledge some of these points (namely COVID-19 and the weaker global/Canadian growth outlook) in its statement, it should leave its forward guidance unchanged. It is worth nothing, also that there will be no press conference after the decision on Wednesday. However, Governor Tiff Macklem will deliver an Economic Progress Report on Thursday. This will mark the first public appearance from a Governing Council member since mid-July.”

BBH

“BoC is expected to keep policy steady.  The weak Q2 GDP print from last week should keep the bank cautious but we still expect tapering to continue in Q4.”

CIBC

“A desire to stay out of the limelight during a close election, and the need for a forecast revision in its October MPR, could tip the BoC into delaying its next tapering announcement to October. That said, the fact that Macklem’s speech on Thursday is titled ‘QE and the Reinvestment Phase’ leaves open the possibility of a tapering announcement. That won’t really surprise markets at this point, and nor, of course, will the decision to keep the overnight rate on hold. The BoC will have to comment on some of the recent GDP disappointments, while no doubt remaining optimistic on the medium-term picture, and sticking to the view that the inflation uptick will be temporary.”

SocGen

“The BoC is likely to stand pat and a decision on the next leg of tapering will be postponed after the surprise contraction in 2Q GDP. The general election on 20 September is another reason for the bank to stay on the side-lines.”

BofA

“We expect the BoC to remain on hold with the policy rate at 0.25% and with bond purchases at CAD2 B per week. Despite high inflation, the economy is still too weak to withdraw stimulus, and the US Fed is providing room to wait. A Federal Election on 20 September may be one more consideration to wait. A potentially dovish tone to the statement suggests idiosyncratic downside risks to the loonie as relative monetary policy drivers remain alive and well. Still, CAD will continue to be influenced by terms of trade developments (i.e. commodity prices) and global risk appetite, both of which have rebounded of late on expectations that Fed accommodation will persist as US data have softened. We see limits to this. Per our recent forecast revision, we expect USD/CAD at 1.30 at end-year."

See: USD/CAD to plummet below 1.25 in fall – ING