Bank of Nova Scotia T.BNS

RBC on BOC tapering and potential hikes

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Royal Bank of Canada On the Bank of Canada and Tapering

 

30 Jul 2021 16:23 ET

04:23 PM EDT, 07/30/2021 (MT Newswires) -- RBC in its 'Canadian Macro Musings' note of this Friday noted the focus on Bank of Canada policy this year has been on the taper of GoC bond purchases and adjustments to the Bank's forward guidance timeline. RBC said the next likely step for the taper is a move down to C$1 billion per week, which would represent a 'reinvestment-only pace' in 2022 as the BoC has about C$49 billion of its QE purchases maturing in the year. RBC thinks October is the likely timing for that step and it expects some additional focus on BoC balance sheet management as well. Consistent with the Bank's "steady" tapering, RBC's preliminary expectation is that the BoC will want to avoid the market reliance on bond purchases -- both in terms of signaling and supply digestion -- that other central banks have encountered. RBC said around the time of lift off -- RBC has BoC hikes in Q3 and Q4 of 2022 -- the conversation on scaling back reinvestment should be heating up as well. It noted that with C$56bn (and still rising) of QE maturities in 2023 and other programs rolling off, the BoC has the ability to reduce their balance sheet imprint through maturities. "We continue to see it as unlikely that they will resort to outright sales," RBC added.