BOC monetary policy preview

Today Bank of Canada (BOC) is to provide further guidance in policy meet. Result to be announced at 14:00 GMT.

Current policy measures–

• BOC is maintaining overnight deposit rate at 0.5%

The core objective of BOC monetary policy is price stability which means keeping inflation within a range of 1-3%. Headline inflation is currently at 1.6 percent.

Economy at a glance–

• Canada is a small economy of $1.8 trillion approximately, compared to its larger neighbor US.
• GDP growth has weakened since 2014. GDP grew by 0.6 percent in the final quarter of 2016. It was up 1.9 percent from a year ago.
• Lower oil price and commodities remain a major concern for the economy. In addition to that, United States’ desire to renegotiate trade deals is a major risk for the Canadian economy as the US is its biggest trading partner.
• The unemployment rate is now hovering at 6.5 percent, still away from the pre-crisis level below 6 percent.

What to watch out for –

Median expectation is that BOC will keep policy unchanged, however, a rate cut possibility in the future can’t be wiped out entirely, given the weakness in the economy.

What changes in communication would be vital to watch for -

• Changes in inflation expectation ahead. Higher or stable expectation would indicate a rate pause by the bank, which would provide support to the Canadian dollar.

• The outlook for oil price and impact on the economy.

• Changes in growth forecast ahead.

• Contingency plans of BoC (if any) for new policies of the United States.

Impact –

The Canadian dollar strengthened on the hope of an extension of the current production deal among OPEC and participating N-OPEC members. It strengthened from 1.38 per dollar to 1.35 as of now in the course of last two weeks.

The focus is more on the OPEC/N-OPEC meeting tomorrow than on the BoC. Without any action taken, the BoC policy meeting likely to a non-event for the market.