Bank of Canada Holds Rate Unchanged At 0.25%, Keeps C$3BN Weekly QE

Unlike recent months, when the Bank of Canada surprised markets by becoming one of the first to taper its QE, there were no surprises in today’s BOC announcement, with the central banks keeping the rate unchanged at 0.25% as expected, while also keeping its weekly purchases and forward guidance both unchanged too.

The BOC said it will hold current level of policy rate “until inflation objective is sustainably achieved,” while continuing its quantitative easing at a rate of CAD$3BN per week, while keeping expectations intact for another reduction in emergency stimulus levels next month.

“We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. Based on the Bank’s latest projection, this is now expected to happen some time in the second half of 2022,” the BoC said in its statement Wednesday.

The bank said that while COVID-19 cases are “falling in many countries and vaccine coverage rising” leading to a pick up in global economic activity, the bank cautioned that “growth remains uneven across regions.”

The US is experiencing a strong consumer-driven recovery and a rebound is beginning to take shape in Europe, while a resurgence of the virus is hampering the recovery in some emerging market economies. Financial conditions remain highly accommodative, reflected in broadly higher asset prices. Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation.

Some other notable highlights from the statement:

• Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation.
• In Canada, economic developments have been broadly in line with the outlook in the April Monetary Policy Report (MPR).
• We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.
• Based on the Bank’s latest projection, this is now expected to happen some time in the second half of 2022.
• While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.
• Housing market activity is expected to moderate but remain elevated.
• Strong growth in foreign demand and higher commodity prices should also lead to a solid recovery in exports and business investment.

And here is a redline comparison of the BOC statement courtesy of Newsquawk:

And since the BoC statement was largely a reiteration of the April statement, there was barely any reaction in the USDCAD which was effectively flat on the decision.