Bank of Canada
The Bank of Canada (BoC) is the nation's central bank and its current Governor is Mr Tiff Macklem, who assumed office last summer. Its mandate, as defined in the Bank of Canada Act, is "to promote the economic and financial welfare of Canada."
One of its four core functions is to set the monetary policy with the aim of keeping inflation low, stable and predictable. BoC has an Inflation-Control Target of 2%, the midpoint of a 1 to 3 per cent target range, which was first introduced by in 1991 and is reviewed every five years.
Similarly to most major central banks, the BoC slashed rates in 2020 (to its current level of 0.25%) and enacted a massive stimulus program to combat the pandemic shock to the economy.
During its previous monetary policy decision on April 21st, the BoC had maintained interest rates at 0.25%, but had reduced the Quantitative Easing program (QE) to a target of C$3 billion/week (from C$4 billion).
More than that, the bank had also signaled the possibility of a rate hike as early as the second half of 2022, by stating: We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. Based on the Bank's latest projection, this is now expected to happen some time in the second half of 2022.
This made it the first major central bank to hint at higher rates and was followed by its New Zealand counterpart (the RBNZ) a month later, which projected a rate increase in H2 2020.
Yesterday, following April's hawkish shift the BoC opted to stay pat and kept rates unchanged at 0.25% and QE at C$3 billion/week.
The bank commented that CPI inflation will likely remain near 3 percent through the summer, but it is expected to ease later in the year and reiterated its view that the 2% target would be sustainably achieved sometime in the second half of 2022.
It also acknowledged that after last week's poor Jobs report, the employment rate remains well below its pre-pandemic level. Officials were not worried about the Q1 GDP coming in below their projections, as it still grew at a robust 5.6%
Wednesday's meeting was a quite affair, with no press conference, but investors will be looking forward to today's speech by the Deputy Governor Mr Lane (17:00).
The next meeting in July is expected to be more interesting, since it will include the bank's updated projections for the GDP and inflation. We will also be waiting to see if it will further reduce its Quantitative Easing program and/or offer fresh insights regarding its interest rate path. As per the bank's April commentary we are still far from a rate hike, with the BAX futures currently implying 50% probability of the first rate increase to take place in September 2022.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business.
He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets.
He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.