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Free AccessMNI REVIEW: BOC Says QE Will Be Calibrated to Support Recovery
The Bank of Canada said Wednesday it could adjust QE to support the long and choppy recovery following the Covid-19 reopening, a slightly more even-handed approach than in its the July statement when it said it would offer more stimulus if needed.
The Ottawa-based bank also affirmed a plan to keep its key lending rate at the lower bound of 0.25% until inflation is sustainably back at the 2% target. The pace of QE was also confirmed at at least CAD5 billion a week of federal bond purchases.
"This QE program will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective," policy makers led by Governor Tiff Macklem wrote in a one-page statement. The change in wording to calibrated was one of the only real shifts from the July statement that "the Bank is prepared to provide further monetary stimulus as needed."
The BOC's balance sheet reached 27% of second-quarter GDP or CAD537 billion last week, and some investors have speculated yield curve control may become an option if the economy weakens or QE creates shortages of some bond issues. A repeated phrase today about holding down yields across the curve may signal that curve control isn't happening. Such a move would be difficult anyways with Canadian bonds often driven by trends in U.S. Treasuries.
Wobbly Recovery
While third-quarter growth may be faster than policy makers expected, they also stressed potential weaknesses in exports, business investment and a shaky jobs recovery. The economy's 13% contraction in the first half is about what the BOC expected. Private economists see a 40% third-quarter expansion to match the second-quarter's historic decline, thought that still won't bring the economy back to where it was before.
"The Bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support," the statement said.
Inflation will remain well below target in the near term and core price measures are consistent with a "large degree of economic slack," the BOC said. There were no specific updated economic projections for coming quarters or for 2020 GDP.
All 13 economists surveyed by MNI predicted no change in the policy rate on Wednesday, and several see the rate on hold through all of next year at least. In July the BOC projections showed inflation won't return to 2% through 2022.To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.