With an Optimistic Economic Data, What to Expected from BoC Upcoming Announcement?

 

At their last meeting, policymakers of the Bank of Canada mourned the Canadian economy with an “eulogy speech” that went along the lines of “the uncertainty around how the recovery will unfold remain high”, and its resurrection would be “prolonged and bumpy”. At that time, back in March, the Bank of Canada applied its “effective lower bound” of 0.25% - a historic low - when the scale of the crisis was clear on the economy and the potential consequences became inevitable. 

 

 

Since its depressing June meeting, new headlines and data came quite optimistic; Central bank's quarterly survey of businesses showed positive figures, with Companies refilling some positions that they terminated earlier this year, employment increased by over 290,000 in May and almost 1 million in June, consumer and business sentiment indicators moved higher, and housing prices went up to 12%.

 

Does that mean the economy has recovered, and no additional measures are needed?

 

The pool of services already set by the Bank of Canada seems to be delivering the support needed with right amount, and several other measures took place to ensure short-term liquidity; with the BoC buying corporate, government and provincial bonds. On the other hand, most of the official commentaries have been cautiously positive, talking about a rapid recovery that would start a modest, yet steady, growth that would persist beyond the reopening phase jump in figures.

 

And with the repetitively statements from the BoC stating that rates would be maintained “as long as required”, negative interest rates seem very unlikely. Which would lead us to believe that interest rates would be held at 0.25% for a longer period – many believe it to be for around two year – while any further support would be expected through additional asset purchases. Nothing indicates that a policy change is urgently needed.

 

In addition, BoC’s finally free form the crash of oil prices, witnessed during March, and benefiting from a largely stable oil market during the past month, and prices breaking above 40 $ pb.

 

All of the above, helps BoC to get rid of all its aggressive tools in its next meeting, the main summer’s cloud alarm would persist on the consumer and businesses spendings level. Numerous energy and service sector companies don't expect to hire at the same level of pre-pandemic, and workers remain worried over losing their jobs. Data from the bank’s regular survey, released alongside the business outlook survey, showed worrying levels of spending expectations, with consumers preferring to spend mostly on essentials and less on durable goods such as cars and furniture, and services with a face-to-face interaction such as malls, dinning, entertainment centers and travel.