Tiff Macklem explains policy decisions after BoC raises interest rate to 5%


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Tiff Macklem, Governor of Bank of Canada, comments on the policy outlook following the Bank of Canada's (BoC) decision to raise the policy rate by 25 basis points to 5% in July.

BoC press conference most important quotes

"Higher interest rates are needed to slow growth of demand in the economy and relieve price pressures."

"Labor market remains tight, even if there are some signs of easing."

"BoC is prepared to raise rates further."

"If we don't do enough now, we'll likely have to do even more later."

"Governing Council did discuss possibility of keeping rates unchanged, but cost of delaying action was larger than the benefit of waiting."

"With increases in policy rate in June and July, our outlook has inflation going gradually back to 2% target."

"We are concerned, if we're not careful, the progress to price stability could stall."

"There was a clear consensus among the Governing Council there was not a big benefit of waiting to raise rates."


This section below covers the Bank of Canada's policy announcements and the immediate market reaction.

The Bank of Canada (BoC) announced on Wednesday that it raised the benchmark interest rate by 25 basis points (bps) to 5% following the July policy meeting. This decision came in line with the market expectation.

The Canadian economy has been stronger than expected, with more momentum in demand, the BoC noted in its policy statement. "The Governing council remains concerned that progress towards 2% inflation target could stall, jeopardizing return to price stability." 

The BoC removed the language from the June policy statement saying 'monetary policy was not sufficiently restrictive.'

Market reaction

The USD/CAD pair extended its slide with the initial reaction to the BoC policy announcements and was last seen trading deep in negative territory at around 1.3150.

Key takeaways from the policy statement

"CPI inflation is forecast to hover around 3% for the next year before gradually declining to 2% in mid-2025."

"Downward momentum in inflation has come more from lower energy prices, and less from easing underlying inflation."

"Recent retail trade and other data suggest more persistent excess demand in the economy."

"Housing market has seen some pickup; new construction and real estate listings are lagging demand, adding pressure to prices."

"Consumption growth has been surprisingly strong at 5.8% in the first quarter."

"With three-month rates of core inflation running around 3.5-4% since September, underlying price pressures appear to be more persistent than expected."

"We will be evaluating whether evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving 2% inflation target."

"BoC expects economic growth to slow, averaging around 1% through H2 2023 and H1 2024."

"BoC is continuing its policy of quantitative tightening."

"Annualized Q1 GDP seen at 3.1% (vs 2.3% in April), Q2 1.5% (vs 1.0% ), Q3 1.5%."

"inflation to average 3.7% in 2023 (vs 3.5% in April), 2.5% in 2024 (vs 2.3%), 2.1% in 2025."

"BoC estimates output gap in Q2 is between 0% and 1%, which is slightly less excess demand than estimated for Q1."

"BoC estimates nominal neutral rate of interest lies within a range of 2% to 3%, unchanged from April assessment."

"Potential output growth in Canada is expected to increase to about 2% per year over projection horizon from 1.4% in 2022."

"Labor force is projected to expand robustly due to strong immigration and influx of temporary residents, which more than offset effects of aging population."


This section below was published at 08:00 GMT as a preview of the Bank of Canada's policy announcements.

  • Bank of Canada is set to raise rates by 25 bps rate hike to 5.0% on Wednesday.
  • BoC will publish its updated economic projections, Governor Macklem’s presser to follow.
  • BoC’s rate outlook and Macklem speech to ramp up volatility around the Canadian Dollar.

The Bank of Canada (BoC) is widely expected to announce another 25 basis points (bps) rate hike at its July monetary policy meeting due this Wednesday, bringing rate hikes back on the table after hitting the pause button in March. 

Bracing for the BoC showdown, USD/CAD is maintaining its corrective mode from a monthly high of 1.3389, as the Canadian Dollar remains underpinned by improving domestic economic activity and tighter labor market conditions.

Bank of Canada interest rate decision: What to know in markets on Wednesday, July 12

  • USD/CAD is sitting at two-week lows near 1.3200 amid persistent US Dollar (USD) weakness and a sharp rally in WTI prices. 
  • Recent speeches by the Fed officials signalled that the Fed could be nearing an end to its tightening cycle.
  • The benchmark 10-year US Treasury bond yield stays under pressure below 4.0%.
  • The data from the US showed on Wednesday that inflation, as measured by the change in the Consumer Price Index (CPI), declined to 3% on a yearly basis in June from 4% in May. This reading came in slightly below the market expectation of 3.1%.
  • The BoC policy announcements and Macklem’s presser will be key to the short-term direction in the USD/CAD pair in the aftermath of the US CPI data-led market volatility.

Analysts at TD Securities (TDS) offered a more hawkish outlook on the BoC policy decision this Wednesday, stating, “we look for the BoC to hike another 25bps to 5.00% in July. Upward revisions to projections in the July MPR will provide the main catalyst for the hike but we do expect a more balanced statement relative to June after some further erosion of sentiment.”

“We also look for the Bank to leave its guidance open-ended, although we believe 5.00% will mark the terminal rate for the BoC,” they added.

When is the BoC monetary policy decision and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision at 14:00 GMT. The policy announcements will be accompanied by the central bank’s quarterly economic forecasts and its assessment of risks. BoC Governor Tiff Macklem will hold a press conference at 15:00 GMT.

The Bank of Canada is likely to raise rates to 5.0% in July from 4.75% seen in June when the central bank delivered a surprise 25 bps lift-off. Markets are pricing about a 68% probability of a quarter percentage point hike by the central bank this week.

Strengthening Canadian economy along with a strong labor market justifies the case for a July rate hike even though the country’s annual Consumer Price Index (CPI) rose at its slowest pace in two years at 3.4% in May. According to Statistics Canada, Canadian Gross Domestic Product (GDP) expanded 0.4% during the month. Meanwhile, the county’s employment data published by the agency showed Canada added 60,000 jobs despite a rise in the Unemployment Rate to 5.4% in the reported month.

However, should the BoC hike interest rates by another 25 bps in July with no clarity on the future policy path, the Canadian Dollar could come under selling pressure, driving the USD/CAD pair back toward 1.3400. The major could also see a sustained rally in case the central bank surprises and holds rates at 4.75%. On the other hand, USD/CAD sellers could flex their muscles and target 1.3100 if the BoC hints at extending its tightening cycle until it brings down inflation to its 2.0% target.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the USD/CAD: “The pair has breached critical daily support lines to reach the lowest level in two weeks ahead of the BoC rates decision. The Relative Strength Index (RSI) is pointing south below the midline, justifying the USD/CAD weakness.”

Dhwani also outlines important technical levels to trade the major: “Sellers are likely to challenge the 1.3150 psychological level if the Canadian Dollar gathers upside traction on the BoC policy announcements. The next key support is seen at the June 26 low of 1.3117. Alternatively, immediate resistance awaits at the bearish 21-Daily Moving Average (DMA), pegged at 1.3234. Acceptance above the latter is critical to initiate a meaningful recovery toward the 1.3400 round figure.”

Bank of Canada FAQs

What is the Bank of Canada and how does it influence the Canadian Dollar?

The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.

What is Quantitative Easing (QE) and how does it affect the Canadian Dollar?

In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.

What is Quantitative tightening (QT) and how does it affect the Canadian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.

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