Bank of Canada has room to surprise the market – BBH

By FXStreet FXStreet (Córdoba) – According to analysts from Brown Brother Harriman, the Bank of Canada could choose to ease policy, but by introducing an asset purchase program instead of a rate cut.

Key Quotes:

“The Bank of Canada is widely expected to cut its overnight rate by 25 bp tomorrow. Unlike the ECB or the Sweden’s Riksbank that are easing policy an attempt to arrest low inflation or deflationary forces, the challenge for Canada is growth. The economy has been hit with a significant terms of trade shock and the collapse of WTI and Brent has been more than duplicated by Canada’s benchmarks.”

“A rate cut would not be surprising. However, subjectively we see a modest chance that with the new government pursuing a more accommodative fiscal policy that the central bank bides its time. It also may not want to be seen panicking in response to the market turmoil over the last couple of weeks, which has included a 4.7% decline in the Canadian dollar, which is tantamount to some degree of easing.”

“Even if the Bank of Canada chose to ease policy, it might prefer to launch an asset purchase program instead of pushing the overnight rate …read more

Source:: FX Street