BoC Preview: Forecasts from nine major banks, pointing to a reduction in weekly assets purchases

The Bank of Canada (BoC) is largely expected to keep its policy rate unchanged at 0.25% following its July meeting at 14:00 GMT. More importantly, the BoC is expected to reduce weekly asset purchases to $2 billion.  As we get closer to the release time, here are the expectations as forecast by the economists and researchers of nine major banks, regarding the upcoming announcement.  

USD/CAD is hovering around 1.25. A hawkish BoC policy outlook is likely to provide a boost to the loonie, according to FXStreet’s Eren Sengezer.

TDS

“The outlook looks bright, but growth is likely to fall short of the BoC's lofty forecast from April. We don't expect any change in forward guidance, with the BoC still signaling that it expects economic slack to be fully absorbed (and rate hikes to occur) in 2022H2. We also look for another taper, from $3bn to $2bn per week in GoC purchases.”

RBC

“We expect no major forecast changes in Wednesday’s Bank of Canada rate decision and Monetary Policy Report. Indeed, the Canadian economic recovery is progressing largely in line with the central bank’s expectations, suggesting April GDP growth forecasts should be left mostly intact. We are tracking a 3.5% rise in Q2 GDP despite the spring virus wave — a projection in line with the BoC’s last published forecast. With the economy performing largely as expected, we look for the BoC to lower the pace of asset purchases this month. Surging housing costs and a retracing of price declines earlier in the pandemic (particularly for energy prices) already pushed headline CPI growth to 3.5% from year-ago levels in April and May. We expect the Q3 average to remain above the top-end of the central bank’s 1% to 3% target range. Although those readings have been higher than expected, BoC policymakers will likely continue to see the recent price surge as transitory. Up to this point, the increases have mainly pushed price levels back toward pre-pandemic trends. We expect no change to the policy rate or forward guidance timeline with the Bank expected to maintain exceptionally low policy rates until the second half of 2022.”

ING

“The Bank of Canada is set to announce another tapering of their QE asset purchases, reducing it to$2bn per week from $3bn. This would be the third taper with QE purchases initial up at $5bn per week. However, a very successful vaccine program over recent months, coupled with strong commodity markets and a rapid rebound in employment mean the economy is on course for strong growth and prolonged above-target inflation readings. We expect the BoC to reaffirm that we should expect interest rate rises from the second half of next year.”

NBF

“The Bank is due to publish its July MPR which will come with a revised set of economic projections. Unlike the April MPR, however, changes here should be relatively modest (save for the possible introduction of a labour market element). The overall real GDP growth outlook looks roughly in line with earlier guidance, though we should see inflation projections marked up. That said, we fully expect the Bank to continue to flag inflationary pressures as largely transitory. Overall, the statement, MPR and subsequent Tiff Macklem press conference is likely to remain cautiously optimistic, supported by strong jobs growth, an encouraging Business Outlook Survey and solid progress on the inoculation campaign. As for policy changes, we are expecting another $1bn taper of the QE program, moving the weekly purchase pace from $3bn per week to $2bn per week. When it comes to forward guidance on the policy rate, we are not looking for any changes given the roughly unchanged growth outlook. That means eventual rate hikes will continue to be contingent on slack absorption which, according to the Bank, is expected to come sometime (or some time?) in the second half of 2022.”

BBH

“There will be updated macro forecasts at this meeting. The bank opted not to change anything at the most recent meeting June 9. However, the bank said then that it will adjust the QE program based on its ‘ongoing assessment of the strength and durability of the recovery.’ That suggests further tapering is in the cards as the recovery continues. We expect another round of tapering this week, but given the mixed June jobs report that followed two straight months of job losses, it's going to be a close call. Ahead of the decision, May manufacturing sales will be reported that morning. June existing homes sales will be reported Thursday, followed by June housing starts and May wholesale trade sales Friday.” 

CIBC

“We don’t expect to see any market waves arising from the BoC’s announcement or Governor Macklem’s remarks, even with a further tapering of bond purchases likely to be unveiled. If it uses this meeting to pare back purchases by a further $1bn per week as seems likely, the spin will be that this is nothing more than a continuation of the path it was already on.”

MUFG

“The BoC is expected to deliver multiple rate hikes from next year. There is no reason to expect the BoC to alter their rate guidance for hikes from 2H 2022 at Friday’s policy meeting. We do though expect the BoC to announce taper in the weekly pace of QE to $2bn.”

Citibank

“We expect another taper in asset purchases at this week’s meeting, with the weekly pace reduced from $3bn per week to $2bn. In the team’s base case, the pace is slowed further to C$1bn at the October meeting, with a December meeting announcement to reach net-zero by the end of 2021. However, markets have already come to expect a hawkish BoC and are currently pricing substantial rate hikes in 2022 and a ‘neutral’ statement could be a somewhat dovish surprise.”

Rabobank

“We expect the BoC to leave the policy rate unchanged at 0.25%. We expect the Bank to slow the minimum pace of asset purchases to $2bn a week, before another $1bn reduction at the October meeting to $1bn as we head into 2022. We will see a new Monetary Policy Report (MPR) and a new set of economic forecasts which are likely to revise growth and inflation higher in 2021. We expect the general tone of the statement to be somewhat similar to back in June with a ‘cautiously optimistic’ view on the economy.”