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BOC POV On Rate Annc, Steady, Talk Of Micro-Cut

CANADA
Consensus: The Bank of Canada will keep its target rate on hold at 0.25% Wednesday, while holding asset purchases steady at CAD4B/week. Covid-19 and it's more infectious variants continue to weigh on economic activity necessitating the Bank to remain highly accommodative. That said, positive vaccine developments are lending hope to quicker economic recovery.
  • Dovish/hawkish risks to consensus outlook:
  • Dovish risk: While Governor Tiff Macklem continues to categorically rule out the chance of negative rates, a minority of sell-side analysts suggest there is a chance the BOC implement a micro-cut as a way to provide additional stimulus if needed, say in the event tighter lock-down restrictions weigh on the economic outlook. More quantitative easing and/or yield curve control remain additional options if needed.
  • Hawkish risk: Tighter policy implementation remains a ways off. While the economic outlook is improved on balance, hiking rates after reaching and sustaining 2% inflation remains a long way off (late 2022- to 2023 est).
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