Risk In The Week 02/25/2022 BoC Brief Preivew,Read full preview here cablefxm.co.uk/reports
The BoC left its benchmark overnight rate unchanged at 0.25%, while it mentioned that the economic slack is now essentially absorbed, a key prerequisite for the bank to start normalizing policy and hiking interest rates.
The January meeting was seen as a coin flip, analysts from a variety of desks stood divided, with some bringing rate hike calls from the BoC. The bank lowered its GDP forecasts for 2021 at 4.6%, and saw the economy expanding at 4% in 2022 and 3.5% in 2023. Inflation was revised higher to average 4.2% in 2022 and 5.1% Y/Y in Q1 of 2022. On bond holdings, the bank said these would be constant until the first rate hike, while it said to continue the reinvestment phase.
An economist at BMO Capital Markets said that the BoC is most likely to hike by 25bps and the debate for a 50bps hike is over. BMO said that there’s more uncertainty in the balance sheet front as this is the first time the central bank is dealing with QE/QT. BMO reminds us that Deputy Governor Lane has recently suggested that the bank could end reinvestment and start QT next week.
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