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23 Sep 2014
BoC dovishly neutral - TD Securities
FXStreet (Łódź) - The TD Securities team of analysts list the takeaways from BoC Senior Deputy Governor Wilkins's speech on Monday, which kept CAD under pressure throughout the day.
Key quotes
"First, that the BoC's current potential economic growth estimate of just below 2% is unlikely to be revised upwards in the upcoming October MPR."
"Second, the central bank estimates the nominal neutral policy rate to be between 3 to 4%, down from a range of 4.5% to 5.5% prior to the crisis."
"Third, that even with a closed output gap and inflation at target, as long as the factors leaning on growth persist, the policy rate may not be at neutral."
"Fourth, the central bank watches developments in inflation carefully to distinguish between temporary and lasting effects and that they are very confident they could act quickly to rein in above target inflation."
"Moreover, given household debt levels, interest rate increases could have a larger impact than in the past. Conversely, if inflation were to surprise on the downside and remain stubbornly below target, that could be harder to deal with."
"Given where the policy rate is today, there would not be much more conventional monetary policy could do."
"Fifth, although household imbalances are at the top of their list of vulnerabilities, monetary policy is not the primary tool to address these risks."
"In other words, in its 'risk-management approach to monetary policy' the BoC appears to embrace wholeheartedly the low for longer policy mantra; and, if they are going to run a risk, that would be to tighten later rather than sooner -- i.e., there is hardly any appetite to move ahead of the Fed."
Key quotes
"First, that the BoC's current potential economic growth estimate of just below 2% is unlikely to be revised upwards in the upcoming October MPR."
"Second, the central bank estimates the nominal neutral policy rate to be between 3 to 4%, down from a range of 4.5% to 5.5% prior to the crisis."
"Third, that even with a closed output gap and inflation at target, as long as the factors leaning on growth persist, the policy rate may not be at neutral."
"Fourth, the central bank watches developments in inflation carefully to distinguish between temporary and lasting effects and that they are very confident they could act quickly to rein in above target inflation."
"Moreover, given household debt levels, interest rate increases could have a larger impact than in the past. Conversely, if inflation were to surprise on the downside and remain stubbornly below target, that could be harder to deal with."
"Given where the policy rate is today, there would not be much more conventional monetary policy could do."
"Fifth, although household imbalances are at the top of their list of vulnerabilities, monetary policy is not the primary tool to address these risks."
"In other words, in its 'risk-management approach to monetary policy' the BoC appears to embrace wholeheartedly the low for longer policy mantra; and, if they are going to run a risk, that would be to tighten later rather than sooner -- i.e., there is hardly any appetite to move ahead of the Fed."