Bank of Canada Preview: Forecasts from nine major banks, action expected in July

The Bank of Canada is set to leave rates unchanged at 0.25% and provide more information about its announcement to taper down its bond buys at 14:00 GMT. As we get closer to the release time, here are the expectations as forecast by the economists and researchers of nine major banks, regarding the upcoming announcement.  

Meanwhile, the Canadian dollar is supported by the increase in oil prices – WTI has topped the $70 level.

ING

“We expect the BoC 9 June meeting to be quite uneventful and to have a contained market impact. The Bank’s concerns about a slower recovery should be offset by the fast vaccination campaign in Canada. We expect more tapering at the July meeting, which should allow CAD to trade below 1.20 in the summer.”

TDS

“The June BoC Announcement should be a relatively quiet affair. Despite a weaker than expected Q1, look for the Bank to argue that the outlook is unfolding roughly in-line with their April forecast. We expect the forward-looking passage to signal 2022H2 rate hikes, and we do not expect any change in QE at this meeting. The risks for CAD skew negatively, reflecting its status as the most overbought and well-populated currency in the G10 now. Momentum has been a key feature, especially as the broad USD has tanked since April. Still, any signs of caution from the BoC would reset the scales, where our short-term valuation models imply a level around 1.24.” 

CE

“We expect the Bank of Canada to keep its policy unchanged and maintain a similar tone in its policy statement to that in April.”

RBC Economics

“The BoC is likely to posit that near-term increases in consumer price growth rates will prove ‘transitory.’ But there have also been signs of harder-to-dismiss firming in most measures of underlying price growth gauges, including the BoC’s own preferred core measures edging up towards or above the 2% inflation target. The overnight rate is expected to be held at 0.25% with markets watching for any change in language regarding further adjustments to the asset purchase program. We expect a stronger economic growth backdrop and firming underlying inflation pressures will ultimately prompt the central bank to begin to reduce policy accommodation with further tapering of the QE program later this year with rate increases unlikely until the second half of 2022.”

NBF

“The BoC’s Monetary Policy Decision should be a relatively quiet affair as we’re coming off the heels of April’s action-packed meeting at which the forward guidance was hawkishly adjusted, bond purchases were tapering and a more optimistic growth outlook was laid out. We expect the central bank to continue to flag price pressures as transitory with base-year effects at play and excess slack still weighing on the economy.” 

CIBC

“The BoC statement won’t add much to what we already know from recent data: activity was temporarily set back by a third Covid wave, but vaccine progress holds out promise for a vigorous rebound over the summer and fall. The statement will also underscore that rates are on hold, but further bond tapering lies ahead. We’ll be looking to see if the statement, or the speech by a Deputy Governor the following day, says anything about the strength of the Canadian dollar, other than that it’s supported by resource prices.”

DBS Bank

“This is a low key statement only policy meeting and hence, there are not a lot of expectations going into this meeting. The current policy rate, the overnight rate target, would be maintained at 0.25%; hence the next policy meeting on 14 July is what the market would look to and monitor closely.  This Wednesday’s policy meeting is thus a ‘pause’ meeting, where there would be a maintenance of key phrases such as assessment of ‘strength and durability of the recovery’ and a reiteration of the April taper meeting, where forward guidance for the first rate hike in late 2022 was provided.”

Citibank

“We do not expect any change in policy at the BoC meeting on June 9, with the pace of QE purchases remaining at C$3 billion per week after the reduction at the April meeting. Language around inflation should be updated to acknowledge the above-target 3.4% headline CPI, though looked through by the BoC. More interesting could be any acknowledgment of core inflation measures returning to the 2% target as the latest estimates now show the output gap closing in H2-2022. Our base case remains that the next reduction in asset purchases will occur in July.”

Rabobank

“We expect the BoC to leave the policy rate unchanged at 0.25%. This is fully expected by both analysts and traders alike. We do not expect any change to the current pace of asset purchases which was reduced from a minimum of CAD4 bn a week to CAD3 bn a week at the previous meeting on April 21st. There will not be a new Monetary Policy Report and so no new forecasts either. Deputy Governor Lane will provide an economic progress report three hours later. The tone of the statement is likely to be slightly more cautious than we heard at the previous meeting. Rhetoric from central bankers since that juncture has noted the slowdown in activity data and the need for a gradual approach to removing support.  We expect the Bank to maintain the guidance that: ‘We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainability achieved. Based on the Bank’s latest projection, this is now expected to happen sometime in the second half of 2022.’”

See – Bank of Canada Preview: QE reduction to continue later in 2021