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BoC’s Macklem sees inflation drifting higher as uncertainty lingers

The Bank of Canada Governor, Tiff Macklem, said that he expects inflation to “drift up a little higher in the coming months,” and commented that “a new era of uncertainty is not going away any time soon,” as he spoke in Halifax.

Regarding rates, Macklem said that the question is whether to hold or raise rates, but if we (BoC) hike very slowly, we need to tighten policy quickly and more than “had we moved earlier.”

Key highlights:

SAYS NEW ERA OF UNCERTAINTY IS NOT GOING AWAY ANY TIME SOON

IT COULD TAKE SOME TIME FOR HIGHER FUEL MARGINS TO NORMALISE, THAT IS A WORRY

THAT IS A WORRY BECAUSE THAT WILL ADD PERSISTENCE TO HEADLINE INFLATION

HAVE CUT Q4 ANNUALIZED GROWTH FORECAST TO 0.75%

EXPECT INFLATION TO DRIFT UP A LITTLE HIGHER IN COMING MONTHS

KEY THING WE'RE GOING TO BE LOOKING AT IS OUR INFLATION FORECAST

QUESTION IS, IS THE CURRENT RATE THE RIGHT ONE OR DO WE NEED TO RAISE IT

IF WE WERE TOO SLOW TO RAISE RATES, WE'D HAVE TO RAISE THEM VERY QUICKLY, AND RAISE THEM MORE THAN HAD WE MOVED EARLIER

Canadian Dollar Price Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.09%0.19%0.33%0.32%0.02%0.05%-0.14%
EUR-0.09%0.04%0.20%0.18%-0.13%-0.12%-0.28%
GBP-0.19%-0.04%0.15%0.13%-0.15%-0.16%-0.30%
JPY-0.33%-0.20%-0.15%-0.02%-0.35%-0.28%-0.44%
CAD-0.32%-0.18%-0.13%0.02%-0.33%-0.28%-0.44%
AUD-0.02%0.13%0.15%0.35%0.33%0.04%-0.13%
NZD-0.05%0.12%0.16%0.28%0.28%-0.04%-0.17%
CHF0.14%0.28%0.30%0.44%0.44%0.13%0.17%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Bank of Canada FAQs

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.

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.

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.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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