Bank of Canada Preview: Forecast from eight major banks

The Bank of Canada (BoC) is set to leave interest rates unchanged and may also comment on the increase in returns on Canadian debt amid better growth prospects in its Rate Statement due out at 15:00 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. 

Ahead of the event, WTI Oil is trading around $64, off the highs seen earlier in the week and allowing USD/CAD to bounce above 1.2650.

See – Bank of Canada Preview: Three reasons why the BOC may unleash C$ strength

TDS

“We look for the Bank of Canada to leave policy and forward guidance unchanged as Governing Council attempts to balance an improving outlook against a market that is already pricing rate hikes by mid-2022. This should result in a brief policy statement that acknowledges the recovery has outpaced expectations while tying forward guidance back to forecasts from the January MPR.”

NBF

“We think the stance of policy should look and feel pretty similar to the January meeting. While we should get an acknowledgment of better-than-expected growth data, the BoC is likely to reiterate that elevated uncertainty persists, note that excess supply is expected to continue to weigh on inflation and highlight the job losses observed in recent labour force surveys. But it’s the calm before the proverbial storm. We continue to expect the Bank will step down its pace of QE at the April meeting. We would stress though that we think the BoC should slow its purchases next week. But the cautious approach Macklem and Co. have taken to date suggests waiting six weeks for additional clarity may be more likely. While a March taper would be inconsistent with BoC messaging, we still see it as a non-trivial possibility.”

CIBC

“The Bank of Canada will leave rates unchanged, citing a huge gap to full employment and sustained (not one-time) inflation pressures, so the focus will be on whether they hint at tapering in bond purchases after April, and how far they go in adjusting their description of the economy given upside surprises in recent data. If that mixed message gets misinterpreted, Deputy Governor Schembri will have the opportunity to correct market perceptions in remarks the following day.”

MUFG

“The BoC is expected to acknowledge the stronger growth outlook at next week’s policy meeting. Growth in Q4 was twice as strong as the BoC had expected. It is encouraging expectations that the BoC will eventually bring forward plans to tighten policy. The BoC will face a difficult challenge if it wants to dampen the pace of the move higher in Canadian yields in the week ahead in light of improving fundamentals. The BoC is likely to reiterate that it does not plan to raise rates until 2023 at the earliest.” 

RBC Economics

“We continue to expect the BoC to remain on the sidelines and maintain their stance that the policy rate remains appropriate for the current environment. No change to the bank’s asset purchase program is expected with policymakers likely to hold off tapering the pace of asset purchases (QE) until the next meeting in April.”

Citibank

“We do not expect any shift in policy or substantial shift in messaging at this week’s BoC meeting that is likely to feature a more optimistic policy statement but still expressing caution over possible downside risks. Our base case is for a C$3 B-per-week asset purchase pace through July, C$2 B from July to October, and C$1 B from October through the end of Q1-2022.”

Capital Economics

“We doubt that the BoC will present a more hawkish tone than in January when it meets on Wednesday, even though the economy has been stronger than expected recently. Instead, we think the Bank will use its policy statement to double down on its commitment to keep its policy rate at 0.25% for a prolonged period, in order to support a full recovery in the labour market and minimise economic scarring.”

OCBC 

“Policy tweaks are not expected. They should continue to sound optimistic, and perhaps lay down some groundwork for a reduction in asset purchases (at C$4 B/week now) in the coming meetings. This would put the BoC way ahead in terms of the pull-back of monetary stimulus, and underlies our bias for firmer CAD structurally.”