Double Hawkish Tone From The BOC (28 October 2021)
QE has ended.
During the monetary policy meeting yesterday, the Bank of Canada (BoC) carried out a hawkish move. The initial expectation from the market was for the central bank to taper its quantitative easing (QE) from C$2 billion per week to C$1 billion per week. However, the BoC surprised the market by bringing its QE to a halt.
Rate hike timeline carried forward.
Back in September’s meeting, the BoC mentioned in the rate statement that interest rate will be held at its current level until its 2% inflation target is sustainably achieved. The central bank projected this target to be met during the second half of 2022. However, in the released rate statement yesterday, the BoC revised its projection and is now expecting the target to be met in the middle quarters of 2022. This directly translates to an earlier timeline for the central bank to hike interest rate.
Quarterly economic projections.
The BoC revised its economic growth projections for 2021 and 2022 downwards while revising upwards for 2023. The downwards revision comes as the central bank is expecting global supply chain disruptions and shipping bottlenecks to carry on into next year, having a negative impact on economic growth.
As for inflation, the BoC revised its projections upwards for all three years, explaining that higher energy prices and supply bottlenecks are now “stronger and more persistent then expected”. Hence, the central bank is expecting inflation to be elevated into 2022.
For year 2021,
GDP: 5.1% (6.0%)
CPI Inflation: 3.4% (3.0%)
For year 2022,
GDP: 4.3% (4.6%)
CPI Inflation: 3.4% (2.4%)
For year 2023,
GDP: 3.7% (3.3%)
CPI Inflation: 2.3% (2.2%)
*Figures shown in parentheses refers to projections from July 2021
What’s next for the BoC?
With the conclusion of QE, the BoC is now moving into the reinvestment phase. In this phase, the central bank will offset bonds maturities by purchasing new bonds to replace those that are maturing in order to maintain the overall bond holdings at around the same level. The targeted range of purchase will be from C$4 billion to C$5 billion per month.
With that, the duration of the reinvestment phase has become a future monetary policy decision and will depend on the economic recovery and how inflation plays out in the future.
During the monetary policy meeting yesterday, the Bank of Canada (BoC) carried out a hawkish move. The initial expectation from the market was for the central bank to taper its quantitative easing (QE) from C$2 billion per week to C$1 billion per week. However, the BoC surprised the market by bringing its QE to a halt.
Rate hike timeline carried forward.
Back in September’s meeting, the BoC mentioned in the rate statement that interest rate will be held at its current level until its 2% inflation target is sustainably achieved. The central bank projected this target to be met during the second half of 2022. However, in the released rate statement yesterday, the BoC revised its projection and is now expecting the target to be met in the middle quarters of 2022. This directly translates to an earlier timeline for the central bank to hike interest rate.
Quarterly economic projections.
The BoC revised its economic growth projections for 2021 and 2022 downwards while revising upwards for 2023. The downwards revision comes as the central bank is expecting global supply chain disruptions and shipping bottlenecks to carry on into next year, having a negative impact on economic growth.
As for inflation, the BoC revised its projections upwards for all three years, explaining that higher energy prices and supply bottlenecks are now “stronger and more persistent then expected”. Hence, the central bank is expecting inflation to be elevated into 2022.
For year 2021,
GDP: 5.1% (6.0%)
CPI Inflation: 3.4% (3.0%)
For year 2022,
GDP: 4.3% (4.6%)
CPI Inflation: 3.4% (2.4%)
For year 2023,
GDP: 3.7% (3.3%)
CPI Inflation: 2.3% (2.2%)
*Figures shown in parentheses refers to projections from July 2021
What’s next for the BoC?
With the conclusion of QE, the BoC is now moving into the reinvestment phase. In this phase, the central bank will offset bonds maturities by purchasing new bonds to replace those that are maturing in order to maintain the overall bond holdings at around the same level. The targeted range of purchase will be from C$4 billion to C$5 billion per month.
With that, the duration of the reinvestment phase has become a future monetary policy decision and will depend on the economic recovery and how inflation plays out in the future.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.