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BOC Sees the Future A Bit Brighter Today
The Bank of Canada held its monthly meeting a while ago. They kept interest rates unchanged and has repeatedly emphasized that 0.25% is its effective lower bound and that it’s not actively considering negative rates. There was no hint or expectation of a cut anyway. Below are the main takes from the BOC statement:
Highlights from the BOC:
- BOC Leaves interest rates at 0.25% as expected
- Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy
- This impact appears to have peaked
- The global recovery likely will be protracted and uneven
- The Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report
- The level of real GDP in the second quarter will likely show a further decline of 10-20% (previously the BOC said 15-30%)
- Buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery
- BOC expects the economy to resume growth in the third quarter
- BOC expects temporary factors to keep CPI inflation below the target band in the near term
- Short-term funding conditions have improved. Therefore, the Bank is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations
- BOC stands ready to adjust programs if warranted
- As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment
- BOC maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway
This was the final decision from Poloz with Macklem attending today as an observer. The Bank of Canada was expecting a 15%-30% decline in the GDP last month, but now their expectations are not as bad as a month ago. But, a big contraction worth 10%-20% is still on the cards. USD/CAD has turned bearish again, but that’s due to USD weakness once again.
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