shine trader live reports:
The Bank of Canada said that it will enter the reinvestment stage after the end of QE. During this period, the central bank will only buy the same amount of Canadian government bonds to replace the maturing bonds, so as to maintain the overall holding unchanged.
It is worth mentioning that before the interest rate resolution of the Bank of Canada on Wednesday, the mainstream view did not think that the Bank of Canada would immediately announce the end of QE. The consensus of a Reuters survey of 20 economists last week only predicted that the Bank of Canada would cut QE bond purchases from C $2 billion a week to C $1 billion in October.
Since the new covid-19 pandemic, the Canadian Central Bank’s quantitative easing program has injected hundreds of billions of dollars into the financial system and increased its holdings of about 350 billion yuan.
In addition to announcing the end of QE in advance, the Bank of Canada also hinted on Wednesday that they may be ready to raise interest rates as early as April next year, because supply problems limit the economy’s ability to achieve economic growth without boosting inflation.
Although President mcclem still sticks to his commitment that he will not raise the benchmark overnight policy interest rate until the recovery is completed, officials now believe that the interest rate increase will occur in the “middle” of 2022, rather than the second half of next year. This wording is expected to strengthen market expectations that the Bank of Canada is ready to quickly turn to the tightening cycle under increasing price pressure.
The Bank of Canada also lowered its economic growth forecast for 2021 and 2022 on Wednesday. However, although the Canadian economic outlook is not so optimistic, the tone of the Bank of Canada on Wednesday is more hawkish. Officials said that this largely reflects that the supply interruption in the global economy is worse than expected. In terms of inflation, the Bank of Canada raised its forecast for inflation in 2021 and 2022 to 3.4%.
Fear of a wave of global austerity?
As the hawkish degree of the overnight decision of the Bank of Canada far exceeded market expectations, there was an uproar in the local foreign exchange and bond markets overnight. The yield of Canada’s two-year Treasury bond once soared more than 24 basis points in New York, breaking the 1% mark. The surge in Canadian short-term bond yields even spread to the U.S. market. The yield of U.S. two-year Treasury bonds further hit a 19 month high of 0.511% on Wednesday.