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BOC Interest Rate Decision & Statement
BOC interest rate decision will be announced today at 3:00pm BST. Afterwards we will be listening out for the tone of the statement and any references to future monetary policy biases. If the BOC suggest further easing may be necessary and the economic forecasts are lower than prior then this will be taken as bearish for the CAD. However, given the recent months of decent economic data there is a more likely chance that the BOC will be more upbeat and look to remain on hold. In this case we may see strength in the CAD.
Only 1/27 analysts surveyed by Bloomberg expects a cut to 0.25%.
Description:
The BOC interest rate decision is announce and the statement is released simultaneously. Unless there is a surprise change in the overnight rate, most of the market impact will come from the language in the statement. The statement is one of the primary tools the BOC uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. The rate decision is usually priced into the market. So it tends to be overshadowed by the BOC Rate Statement. This statement is focused on the future. It discusses the economic outlook and offers clues on the outcome of future decisions.
On a quarterly basis the BOC also release a Monetary Policy Report which provides valuable insight into the bank’s view of economic conditions and inflation. That’s the key factors that will shape the future of monetary policy and influence BOC interest rate decisions. On these occasions they also hold a press conference which commences 1 hour and 15 minutes after the rate decision. The press conference has 2 parts. In the first a prepared statement is read, then the conference is open to press questions. The questions often lead to unscripted answers that create heavy market volatility. The press conference is audio webcasted on the BOC website.
Summary:
The BOC have cut rates by 50 basis points this year. 25 points in each January and July. These cuts were largely due to the lower oil price which contributed to technical recession in Canada during H1. Since the July cut, data from Canada has been reasonable. The labour market saw jobs added for July, August and September. The unemployment rate however ticked up to 7.1% in September, marking a 12-month high. GDP readings for June and July were positive at 0.4% and 0.3% respectively. Core CPI for August ticked up to 0.2% after being flat for June and July. Core CPI was at 2.1% for the year ending August 31, above the target inflation range mid-point of 2%. Collectively these data points suggest the BOC will remain on hold at this meeting. Especially since the price of WTI has stabilised in recent months. The OIS market is pricing over 90% chance that the BOC will remain on hold.
In the likely event that rates remain on hold, the market will turn to the language in the statement and forecasts in the Monetary Policy Report to gain insight into the Bank’s future stance. There is a possibility that the BOC will lean towards a more neutral statement. In that case the CAD will get a boost.
Watch my weekly news events overview here to learn more about BOC interest rate decision and accompanying statement.
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