The Bank of Canada (BoC) left interest rates steady on Wednesday, as predicted. The central bank lowered its weekly purchases even further. Some market participants who were expecting a more aggressive message from the central bank were likely disappointed, according to CIBC analysts.
“The Bank of Canada mainly followed the script today, offering only a few surprises that did not alter its overall message. Weekly asset purchases were reduced by $1 billion, as planned, and bond purchases will now be $2 billion per week going ahead. Rates are expected to remain on hold until the second half of next year, according to the central bank’s predictions, with economic slack not being absorbed until then.”
“The labor market slack, on the other hand, received a lot of attention. Given population growth since February 2020, the Bank of Canada estimates that 550K individuals would need to be hired only to reach the pre-pandemic employment rate. While strong job increases are projected to continue during the summer, the Bank’s forecast indicates that businesses may need to take some time to locate individuals with the necessary skills. Anecdotally, enterprises operating in Canada have reported major labor shortages, similar to what has been reported in other nations during reopenings. Wage inflation has remained quite low thus far. Even if growth picks up in the next months, monetary policymakers appeared to indicate that they will continue to consider overall excess supply in the economy as excessive, requiring significant monetary support.”
“The new growth predictions are still a tad more optimistic than our own for the next couple of years, and as a result, we continue to expect central bankers to hold off on raising rates until late in 2022.”/n
