Bank of Canada: Only a few surprises, overall message unchanged – CIBC

As expected, the Bank of Canada (BoC) kept interest rates unchanged on Wednesday. The central bank reduced further its weekly purchases. Analysts at CIBC, point out that some market participants who were looking for a more hawkish message from the central bank were likely disappointed. 

Key Quotes: 

“The Bank of Canada largely stuck to the script today in providing only a few surprises, none of which changed its overall message. In a widely expected move, weekly asset purchases were tapered another $1bn, with the pace of bond buying now $2bn per week moving forward. The central bank's projections also still see rates on hold until the second half of next year, with economic slack not being absorbed until then.”

“Significant attention was, however, paid to labour market slack. The Bank of Canada suggested that roughly 550K people would need to be hired just to reach the pre-pandemic employment rate, given population growth since February 2020. While large job gains are expected to continue over the summer, the Bank's outlook suggests that businesses could take time to find workers with the right skills. Anecdotally, there have been widespread reports of labour shortages from firms operating in Canada, not unlike the experiences in other countries during reopenings. Thus far, wage inflation has remained subdued. However, even if it accelerates in the months to come, monetary policymakers seemed to suggest that they would continue to view overall excess supply in the economy as elevated, and thus continuing to warrant significant monetary support.”

“The fresh forecasts are still a touch more optimistic on growth than our own for the next couple of years, and as a result we continue to see central bankers waiting longer until late in 2022 before pulling the trigger on a rate hike.”