A quick note from our trading desk on today’s Bank of Canada meeting and press conference.
· The BoC has officially ended QE and moved into the reinvestment phase, where they will simply reinvest maturing bonds. They expect to be in this reinvestment phase until at least the first rate hike.
· Forecast for the output gap to close sometime in mid-2022.
· This has opened the door to rate hikes starting in Q2 2022.
· The market is pricing in a 1% rise in Canadian rates next year.
The bottom line is the BoC will start hiking next year and upward pressure on rates will persist. The debate now turns to the start date and pace of the program.