Stability Ahead: Canada’s Two-Year Financial Markets Outlook

The Conference Board of Canada, 14 pages, October 25, 2021
Issue briefing
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This quarterly economic forecast presents the medium-term outlook for the Canadian economy. This release focuses on financial markets. For an overview of all major components of the economy, go to the Canadian Outlook main page.

Document Highlights

  • With the recovery under way and GDP set to return to pre-pandemic levels by the end of this year, the Bank of Canada reduced its weekly bond purchases this past summer.
  • The Bank is still expected to hold off on hiking interest rates until sometime in late 2022. Given the weakness in export growth and concerns about the pandemic’s delta variant, it is reluctant to move that timetable forward.
  • Monetary officials say the recent surge in inflation is transitory. But if the rise in consumer prices turns out to be more persistent and begins to impact wages, the Bank might have no choice but to increase interest rates sooner than we are projecting in our outlook.
  • The loonie will trade in the US$0.79–US$0.80 range over the near term, as Fed tightening will restrain the appreciation of the Canadian currency that normally occurs when world oil prices are increasing.
  • The European Central Bank likely won’t increase interest rates until sometime in 2024, as the EU’s unemployment rate remains above pre-pandemic levels.
  • The strength of the recovery in the U.K. should allow the Bank of England to avoid resorting to negative interest rates.

Table of Contents

Key findings
Financial Markets Snapshot
Overview
Bank of Canada Slowly Unwinding Stimulus
International Highlights
Methodology

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