Word through the forex grapevine is that the BOC will be tapering its asset purchases in their upcoming statement.
Here’s what you should know:
What happened during the previous statement?
- BOC kept rates on hold at 0.25% in January
- No changes to asset purchases at 4 billion CAD per week
- Policymakers reiterated that rates would stay unchanged until 2023
- BOC shared a more optimistic medium-term outlook
As expected, the Canadian central bank kept interest rates and asset purchases unchanged during their January statement. Governor Macklem and his fellow policymakers also emphasized that they’d likely keep interest rates at 0.25% until 2023.What’s noteworthy about the January BOC decision was that the central bank seemed more upbeat about growth prospects, citing the progress in vaccination efforts and the impact of government stimulus. In fact, the BOC upgraded their GDP forecast to 4% this year and 5% in 2022.
When it comes to inflation, policymakers didn’t seem too bothered by slightly elevated price levels. Instead, they explained that excess supply from the reopening of the economy will mop up inflationary pressures from earlier on.
What’s expected this time?
- BOC to keep rates on hold at 0.25% this month
- Asset purchases likely to be tapered by 1 billion CAD to 3 billion CAD weekly
- More details on balance sheet reduction to be announced
Since BOC officials pretty much set the roadmap for interest rates well into 2023, no actual rate changes are expected this time. However, another taper of 1 billion CAD in asset purchases might be in the cards.Keep in mind that employment data has surprised to the upside in back-to-back months while leading business indicators like the Ivey PMI also signaled stronger-than-expected growth.
However, it’s also important to note that Canada had its share of setbacks in its vaccination rollout. In addition, it appears to be in the middle of another wave of rising COVID-19 cases, which prompted another round of restrictions lately.
If these headwinds are not enough to make the BOC’s confidence in a recovery waver, another set of economic upgrades might be announced. The central bank is also expected to share more details on its balance sheet reduction plans.
If you’re planning on trading this top-tier catalyst, don’t forget to look out for the March CPI readings which are scheduled for release just a few hours before the BOC decision.Stronger than expected inflation figures could spur an early rally for the Loonie, as these would strengthen tapering expectations. On the other hand, downside surprises could give Loonie bulls reason to pause and rethink if the BOC could stay optimistic.
Also, note that much of the BOC tapering expectations have been priced in for quite some time, so there’s a good chance of profit-taking during the actual announcement.
If you’re uneasy about the potential volatility during this major market event, there’s no shame in sitting on the sidelines and just watching price action unfold. Good luck, fellas!