BOC Rate Decision, Statement and Monetary Policy Report will be released today at 3:00pm GMT. The release will be followed by the press conference at 4:15pm GMT. This will likely be a very volatile event no matter what the decision is concerning the rate due to such a divide in the consensus. A rate cut will pressure the CAD, and further widen the policy divergence between the BOC and Fed. A hold by the BOC will see the CAD supported due to the current split market consensus. The continued direction of the CAD will then turn to the statement, Monetary Policy Report, and Press Conference.
The BOC announce their interest rate decision and release their statement 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, which is focused on the future. The statement 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 – the key factors that will shape the future of monetary policy and influence their 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: 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.
The BOC cut rates by 50 basis points in 2015; 25 in each January and July. These cuts were largely due to the lower oil price which contributed to technical recession in Canada during H1. Oil prices have continued to plummet, currently trading under $29, prompting many analysts to forecast a rate cut at today’s meeting. On the other hand, the extreme weakness we have seen in the CAD, which has declined 0ver 20% since the July cut, could pose a problem for the argument for further easing. Analysts polled by Bloomberg are divided with 18 out 34 expecting the BOC to hold, and the other 16 forecasting a 25 bps cut. The OIS market is pricing in 54.5% chance of 25 bps cut.
This article originally appeared at Jarratt Davis.