Bank of Canada decision highlights October 27, 2021

Bank of Canada leader macklem
  • Bank of Canada slows pace of QE to $0B/week vs $1B/week expected
  • Prior pace of QE was $2 billion per week
  • extraordinary forward guidance maintained
  • Supply shortages are 'limiting the economy's productive capacity'
  • Forces
  • Rates left at 0.25%, as expected
  • Estimates output gap at -1.25% to -2.25%
  • In the July MPR, the BOC estimated the output gap at -2.0-3.0%
  • In July, BOC saw output gap closing in H2 2022, now sees it in the 'middle quarters' of 2022
  • Notes significant uncertainty around output gap
  • Sees GDP this year up 5.1% this year and 4.3% in 2022
  • Q3 GDP seen at 5.5% vs +7.3% July forecast
  • July Canada GDP estimate for 2021 6.0%, for 2022 4.6%
  • CPI estimate at 3.4% this year and 3.4% in 2022
  • July Canada CPI estimate for 2021 3.0%, for 2022 2.4%
  • US growth in 2021 seen at 5.6% vs 6.6% in July
  • US growth seen at 3.9% in 2022 vs 5.1% in July
  • Macklem will host a press conference shortly

The Bank of Canada ends its QE program prematurely, tapering its purchases to $0 per month. It was widely expected to taper to $1B/week from $2B/week. The BOC will now only reinvest its existing balance sheet.

USD/CAD has fallen to 1.2337 from 1.2430 in a flash.

The CPI forecast for 2022 to 3.4% from 2.4% is a big shift. That's well-above the BOC's target.

USDCAD chart

This isn't exactly pushing back on expectations for four hikes in 2022 and it tees up a chance for the BOC to hike as soon as the March 2 or April 13 meeting.

On the global growth side, the BOC now sees it at 6.5% from 6.9%. It was mostly downgrades but the outlook for the eurozone improved:

BOC global growth forecasts