MNI POLICY: TEXT: BOC Monetary Policy Report Highlights

By Greg Quinn

     OTTAWA (MNI) - Following are highlights of the Bank of Canada's July

Monetary Report, published Wednesday from Ottawa.

     --"The Bank of Canada expects a sharp rebound in economic activity in the

reopening phase of the recovery, followed by a more prolonged recuperation

phase, which will be uneven across regions and sectors."

     --"Markets generally interpret QE as a signal that rates will likely be at

the lower bound for an extended period."

     --"The Bank has committed to continue buying at least $5 billion of

Canadian government bonds each week until the recovery is well underway."

     --Global "risks appear to be tilted to the downside, largely because of the

potential for a second wave of the virus."

     --"In Canada, a much weaker scenario could crystalize the risks associated

with high household indebtedness."

     --"In the second quarter, when containment measures were at their most

restrictive, (Canadian) economic activity is estimated to have fallen about 15

percent below its level at the end of 2019. The economy appears to have hit

bottom in April, with about 3 million jobs lost. This would imply a gap between

demand and supply of roughly 6 to 7 percent in the second quarter."

     --GDP (QOQ) rate: Q1 -2.1%, Q2 -13.1, Q3 +7.1%

     --CPI (YOY) rate: Q1 1.8%, Q2 -0.1%, Q3 0.4%, Q4 0.4%

     --CPI yearly: 2020 0.6%, 2021 1.2%, 2022 1.7%

     --"Financial markets are now functioning considerably better and,

consequently, the use of some facilities has declined.... Now, with market

functioning improved and the economy reopening, these purchases are providing

considerable monetary stimulus."

     --"In the central scenario, about 40 percent of the drop in output in the

first half of 2020 is reversed in the third quarter.... considerable economic

slack remains."

     --"Restructuring is an additional factor that restrains activity during

recuperation. Some businesses will not reopen, others will go bankrupt, and new

firms will require more time to form and scale.... Insolvencies increase but do

not derail the recovery."

     --"The Canada Emergency Wage Subsidy (CEWS) has helped businesses maintain

relationships with their workers and should reduce longer-term scarring effects

of unemployment on the economy."

     --"The level of potential output by 2022 in the central scenario is almost

4 percent lower than in the January Report. Population, business investment and

labour productivity are all expected to follow lower trajectories."

     --"Although the Bank has reduced the frequency of its short-term liquidity

operations since the improvement in market functioning, the facilities are still

in place as an important backstop while uncertainty remains elevated."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$,M$$CR$]