TORONTO (Reuters) - The Bank of Canada left its key interest rate unchanged at a record low 0.25% on Wednesday, and said the second wave of the coronavirus pandemic is poised to cause a “more pronounced” near-term slowing in the recuperation phase.
MARKET REACTION: CAD/
DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK
“The most meaningful thing here is that they are scaling back on their QE programs … I think that has more to do with some implementation challenges, perhaps, in terms of sourcing enough bonds, particularly shorter duration bonds, so they also reinforced that by announcing that they will skew those purchases more towards longer term bonds.”
“The Bank is not achieving its inflation target, it hasn’t done so in 10 years, and it has inflation expectations across multiple measures that are saying they will continue to not achieve that inflation target. So there’s scope for more creative, out of the box policy tools coming from the Bank of Canada than what I see so far.”
ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES
“It did seem that they were going to do something to adjust their QE. You heard Governor (Tiff) Macklem talking about yield curve control all the way back to July. It seems they don’t think that is the correct path but they recognize that they do need to be focusing more on the long end of the curve.”
“It makes sense. If you look at the way that they have been conducting their buybacks already, they have already greatly reduced the amount of sub 2-year debt that they have been purchasing and that part of the curve has become extremely rich. So it does make sense that they would focus more on long-term bonds. They have a greater impact on the market in those parts of the curve and ultimately it better aligns with the government’s issuance as well.”
DOUGLAS PORTER, BANK OF MONTREAL CHIEF ECONOMIST :
“If anything I’m mildly surprised that they are in line with consensus given the darkening clouds around potential new restrictions. I’m just a touch surprised they didn’t stay a little bit weaker than consensus given all the uncertainty around the outlook.”
“There was quite a bit of debate ahead of this whether they might fine tune their quantitative easing program. I think they went way out of their way, they were at pains to point out that this was not a tightening of policy. It’s more that frankly the supply of government bonds available was dwindling because they had been such aggressive buyers that they were taking up perhaps an uncomfortably large share of the Canadian market. I think that’s why the amount of quantitative easing is being scaled back, but at the same time they’re also going further out the curve where they think it will have more effect. ... I think it’s quite clear that they’re driving home the point that the economy will need stimulus both fiscal and monetary for quite some time.”
Reporting by Jeff Lewis, Fergal Smith; Editing by Denny Thomas
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