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."