MACRO: Can household savings affect BoC decisions?

The Bank of Canada has left its interest rate unchanged at 0.25% as widely expected. Bank maintained its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week. However, it has said that it could adjust the program as the economy recovers. 

Some of the market participants expected a slight reduction as recent statements indicated the BoC appeared to be non-committal on what the effective lower bound is by stating that it "will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved."

Despite the fact that no significant changes have been made today, it seems that there may be some balance sheet changes this year as the statement contains an entry regarding  adjusting “net purchases” as required. Hints of further tapering down supported the Canadian dollar.

Also BoC did not take into account the high level of household savings, which have accumulated around $150 billion (6.4% of GDP) in  the second and third quarters of 2020. If this money is used as the economy opens, economic growth could accelerate much more than the BoC expects. If it causes additional inflationary pressure, then it may induce the bank to act earlier than expected.