Breaking: BOC hikes policy rate by 100 bps to 2.5%
|The Bank of Canada (BOC) hiked its policy rate by 100 basis points (bps) to 2.5% in July, compared to the market expectation for a rate increase of 75 bps.
In its policy statement, the BOC acknowledged that it has underestimated inflation since the spring of last year mainly because of global factors.
BOC Press Conference: Governor Macklem speech live stream – July 13.
Market reaction
The USD/CAD pair fell sharply with the initial reaction and was last seen losing 0.4% on a daily basis at 1.2970.
Key takeaways as summarized by Reuters
"Higher commodity prices, increased supply shortages and rising shipping costs explain about two-thirds of missed inflation."
"About a quarter of the inflation forecast miss came from underestimating domestic factors, mostly housing costs."
"In past, the strong correlation between higher oil prices and an appreciation of the dollar helped offset energy impact on inflation, but recently correlation is not holding."
"Wanted to 'front-load' path to higher interest rates amid excess demand and high, broadening and persistent inflation."
"Inflation is higher and more persistent than had been expected in April forecasts and will likely remain around 8% in the next few months."
"Interest rates will need to rise further and the pace will be guided by the bank's assessment of the economy and inflation."
"Quantitative tightening continues and is complementing interest rate increases."
"Governing council is resolute in commitment to price stability and will continue to take action to achieve the 2% inflation target."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.