Trial now

(N1) Needle Still Points North


(N1) Bullish Theme


(K1) Breaks Out Of Its Recent Range


Larger FX Option Pipeline


Greenback Weakness Resumes into NY Hours

MNI STATE OF PLAY: BOC May Press QE as Market Seeks Taper Clue

MNI (Ottawa)

Governor Macklem told MNI last month that QE will be guided by inflation that's likely to remain modest.

Sign up now for free access to this content.

Please enter your details below and select your areas of interest.

The Bank of Canada on Wednesday may signal another taper of asset purchases is coming at its April meeting, some investors say, while keeping QE steady for now and stressing that the economy needs time to rebound and pull inflation to target even after some recent gains.

Governor Tiff Macklem will hold the overnight target interest rate at 0.25% in a decision due at 10am EST, according to all 15 economists surveyed by MNI. All nine economists who made a prediction said the pace of asset purchases will continue at a minimum CAD4 billion a week.

Macklem told MNI Feb. 23 his main focus is economic slack and not the bond market's bet on a burst of inflation, and his QE actions will be guided by his view inflation won't stabilize at a 2% target until into 2023. The governor also told MNI he's concerned the Canadian dollar's strength could become another drag on growth.

The shorter one-page statement for this meeting, ahead of April's decision that will contain a much larger quarterly economic forecast paper, gives Macklem wiggle room to gloss over January's strong 0.5% GDP gain and progress obtaining vaccines. It's also ahead of the February CPI report that could be the first to show inflation picking up as gasoline prices jump following last year's swoon.


Macklem also told MNI last month that while he has the tools to brake inflation if needed, he doesn't see that as a likely scenario. The last rate decision also said that as confidence in the rebound grows, policy makers could adjust the pace of QE again, and the BOC's standing guidance has been to keep asset purchases going until the recovery is well underway.

"While a March taper would, in our view, be inconsistent with BoC messaging, we still see it as a non-trivial possibility," National Bank Financial rates strategist Taylor Schleich wrote in a research note.

Markets are signaling greater expectations of inflation and perhaps a tightening of QE, with Canada's dollar strengthening 6% over the last year and 10-year federal bond yields doubling to about 0.9% over the last two months.

While Macklem may need to upgrade his January estimate that GDP contracted at a 2.5% annualized pace in the first quarter, even flipping it to a small gain likely won't signal the economy is running hot with inflation at 1%, the bottom of the BOC's target range. GDP remains 3% below pre-pandemic levels.


"I'm confident we have the tools to control inflation. We're more worried about inflation being too low than too high," Macklem said in the MNI interview. "If you saw inflation expectations starting to go way up well above target, that would be a different story."

Arguments for tapering also rest on investor arguments the BOC must avoid buying up more than half of federal bonds, which could happen by year-end. Finance Minister Chrystia Freeland has yet to present a budget for a fiscal year that starts in April, meaning there's still no clarity on future debt auctions.

The BOC already slowed QE in October from the original pace of at least CAD5 billion a week set last March, while also extending the maturity of assets purchased. Macklem said in January that QE is needed for a while and scaling back "will be a gradual process."