Holding policy or increasing the rates?
On Wednesday, 27 Oct. Bank of Canada will meet to discuss its monetary policy. Market participants widely waiting to see no change in BoC interest rate, with another decrease in the level of the central bank`s asset purchasing amount.
While inflation in Canada is above 4%, we expect the BoC to emphasize that it is a transistor and hold its current guidance for the interest rates.
The Canadian economy was one of the fastest and best-recovered economies after the COVID crisis and it was the reason for BoC to start its Hawkish policies, or better say, to ease its ultra-dovish policies earlier than other developed economies. However, this economy softened modestly over the past few weeks. Even though if latest published GDP numbers also were not as good as was expected, however, we do still believe the recovery is still intact and is strong enough that can encourage the BoC to continue tapering the asset purchases to the new level low. One of the main reasons for that is the inflation rates, which is increasing over the Bank of Canada`s target range and it requires justify further monetary tightening.
In short words, our overview is that the Bank of Canada will decrease the scale of asset purchases to C$1 billion per week, but interest rates will be held. Also, we are waiting to see the policymakers release the updated economic projections to show a continued recovery and still robust inflation. Rate hikes id forecasted to be seen in the second half of 2022.
