Macklem to deliver rate decision
The BOC isn't going to change its 0.25% overnight rate today and Macklem has signaled that's the effective bottom so the first part of his term is going to be all about alternative measures.
Things to watch for in today's decision and Monetary Policy Report:
1) The output gap
The BOC's forecast on when the output gap will close is as good as a forecast for when they will start raising hikes. Generally they will start to hike when the get gets down to 0.5% but with the emerging orthodoxy of waiting to see inflation, they could wait until it's nearly closed. Look for a forecast that indicates hikes around late 2022.
2) QE
Poloz in his final days indicated that QE was only to support market functioning but there's going to be a switch in that communication because they're not going to stop buying and the market is working fine. There's no pressing need to act but but they're likely to set up more buying out to 5 years.
3) Other options
What will the BOC do if it wants to stimulate more? Look for forward guidance via a conditional commitment or yield curve control. This announcement won't be about 'action' but about laying out the playoff. Still, that will reverberate in CAD. The reaction will depend on how eager Macklem sounds.
4) Forecasts
It's a struggle for all forecasters but the tone of data has been strong in Canada. Look for the base case to shift higher but that sould be priced in. Even if it does, expect Macklem to highlight downside risks.
