BoC Preview: There Are no Surprises But Could Address Future of QE

Markets are looking forward to Wednesday’s decision interest rates by bank of Canada, and it is widely expected that the Bank of Canada will leave the interest rate unchanged (0.25%). The bank may make some statements regarding the Canadian economy after Canadian data came in above expectations in terms of employment, but growth missed expectations.

Recent data showed that Canadian GDP rose 40.5% year-on-year in the third quarter, a huge jump but still below estimates of 47.6%.

As for jobs, the unemployment rate came in at 8.5% better than expected in November due to the government’s support for job creation.

Policy makers at the Bank of Canada are not likely to make any new interest rate adjustments in their latest decision at the end of the year, but the bank continues with asset purchases and policymakers may signal to address the future course of the QE, as the bank purchased Canadian $5 billion weekly in of government bonds since the Coronavirus pandemic began. Not long ago, the bank began curtailing its asset purchases as it bought $ 4 billion in bonds a week, and the Bank of Canada policymakers may leave some hints about whether and when they will scale back asset purchases again as 2021 approaches.

The decision is not followed by a press conference but the market will follow the accompanying statement for any new signals. The statement may be tilted into a more pessimistic tone given the actual tightening caused by the massive sell-off in the USD/CAD since the last meeting on October 28th.

Some analysts believe that this meeting will be a non-event and that the Bank of Canada does not need to expand the stimulus package by reducing interest rates or increasing quantitative easing, especially with the continuing uncertainty in Canada about when the Coronavirus vaccination will be launched.