|

Bank of Canada leaves policy rate unchanged at 0.25% as expected

In a widely expected decision, the Bank of Canada (BoC) announced on Wednesday that it left its key rate unchanged at 0.25% following its October policy meeting.

In its policy statement, the BoC noted that there is an ongoing and significant slack in the Canadian economy and added that the gap between the actual and potential output is not expected to close until 2023.

Market reaction

The USD/CAD pair edged slightly higher with the initial reaction to the BoC's policy remarks and was last seen gaining 0.78% on the day at 1.3287.

Key takeaways as summarized by Reuters

"Will continue the QE program and recalibrate it."

"Will shift QE purchases towards longer-term bonds."

"Will hold the policy interest rate at the effective lower bound until economic slack is absorbed, sometime in 2023."

"QE total purchases will be gradually reduced to at least C$4 billion a week."

"With these combined adjustments, the QE program is providing at least as much monetary stimulus as before."

"QE shift to longer-term bonds will have a more direct influence on the borrowing rates that are most important for households and businesses."

"Despite continued low oil prices, C$ has appreciated since July, largely reflecting a broad-based depreciation of the US dollar."

"Bank of Canada projects 2020 GDP to fall by 5.7% compared to -7.8% in July central scenario; sees 2021 GDP +4.2% (vs +5.1%), 2022 GDP +3.7% (unchanged)."

"2020 Q2 annualized GDP was -38.7% (vs -43.0% in July central scenario), Q3 gdp +47.5% (vs +31.3%), Q4 +1.0%."

"Resuming practice of giving detailed growth & CPI forecasts because it better understands the effect of containment measures, support programs and medical developments."

"Uncertainty around projections remains extraordinarily high, forecasts assume extensive lockdown measures will not be reintroduced and a vaccine will be widely available by mid-2022."

"Near-term economic activity in Canada set to be affected negatively by measures taken to combat the recent increase in COVID-19 infections."

"There is a serious risk that broader or more intensive COVID-19 related restrictions could be required."

"Quarterly patterns of growth likely to be unusually choppy thanks to the impact of localized outbreaks and varied rates of recovery across industries."

"Fiscal policy will continue to provide important support to the Canadian economy throughout the recovery."

"Inflation expected to remain below 1% until early 2021, largely due to effects of low energy prices; 2021 inflation projected to be 1.O%, 2022 1.7%."

"Investment in oil/gas sector not expected to return to pre-pandemic levels over projection horizon; oil/gas investment seen falling roughly 30% in 2020 before rising just over 2% in 2021-22."

"QE purchases of longer-maturity bonds provide more monetary stimulus than purchases of shorter-maturity debt."

"About half of bond purchases have been bonds with terms to maturity of less than three years."

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

EUR/USD softens below 1.1800 on Fed hawkish remarks

The EUR/USD pair edges lower to around 1.1775 during the early Asian session on Wednesday, pressured by a renewed US Dollar demand. Traders await the US President Donald Trump's State of the Union address later on Wednesday for clarity on fiscal policies. 

GBP/USD regains 1.3500 and above

GBP/USD extends its advance for the third day in a row on Tuesday, this time retesting the area beyond the 1.3500 hurdle. Cable’s uptick comes despite decent gains in the Greenback and the dovish message from the BoE’s Bailey at the UK Parliament.

Gold consolidates below $5,150 as traders await Trump's State of the Union address

Gold steadies below the $5,150 level following the previous day's pullback from the monthly peak as traders opt to wait on the sidelines ahead of Trump's State of the Union address. In the meantime, trade-related uncertainties and geopolitical risks seem to act as a tailwind for the safe-haven bullion. However, the Fed's less hawkish outlook underpins the US Dollar, which, along with a positive risk tone, caps the upside for the non-yielding yellow metal.

Hyperliquid registers mild gains following CoinShares' ETP launch

Hyperliquid registered a 3% gain on Tuesday after CoinShares announced the launch of its Physical Hyperliquid Staking exchange-traded product, offering investors exposure to the token's price and staking yields.

The Citrini report: How a debatable AI narrative can shake Wall Street

That AI-related headline alone was enough to rattle investors.US stocks slid sharply on Monday after a widely circulated Citrini Research memo outlined a hypothetical “2028 Global Intelligence Crisis”, warning that rapid AI adoption could push US unemployment into double digits as early as by mid-2028.

XRP pressured by weak ETF flows and declining retail interest

Ripple (XRP) is edging lower, trading above its intraday low of $1.32 at the time of writing on Tuesday. The decline from its weekly opening of $1.39 reflects heightened volatility in the broader cryptocurrency market, accentuated by tariff-triggered uncertainty.