Breaking: BoC leaves policy rate unchanged at 0.25% as expected, signals hike likely in March


The Bank of Canada announced on Wednesday that it was holding its overnight interest rate at 0.25%, as the majority of market participants had been expecting. Note that a minority had expected a 25bps rate hike to 0.50%. The bank also signaled that a rate hike would likely be coming in March by saying that overall slack in the economy had been absorbed, satisfying the conditions outlined in the bank's forward guidance for an interest rate hike.  

Additional Takeaways as summarised by Reuters:

On rate hikes... 

  • Overall slack in the economy has been absorbed, satisfying the condition outlined in the bank’s forward guidance on its policy interest rate. 
  • The BoC has decided to end its extraordinary commitment to hold its policy rate at the effective lower bound. 
  • The BoC will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation. 
  • The BoC expects interest rates will need to increase, with the timing and pace of those increases guided by the bank’s commitment to achieving the 2% inflation target. 

On possible balance sheet reduction...

  • BoC will keep its holdings of Canadian government bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. 
  • It is continuing its reinvestment phase, keeping its overall holdings of Canadian government bonds roughly constant.
  • At that time, the BoC will consider exiting the reinvestment phase and reducing the size of its balance sheet. 

Economic/financial commentary...

  • Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated
  • The Omicron variant is weighing on activity in the first quarter.

Market Reaction

USD/CAD saw a positive reaction to reflect loonie weakness after the BoC disappointed a minority of market participants by not opting to surprise with a 25bps rate hike on Wednesday, but rather signal a rate hike coming up at the next meeting. USD/CAD currently trades about 60 pips above its pre-BoC announcement levels. Given it was a hawkish hold, with the bank signalling rate hikes and quantitative tightening will be coming soon, the loonie's overall losses may be somewhat limited.  

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

AUD/USD: Bulls firming to test critical 0.71 the figure that guards a much stronger correction

AUD/USD: Bulls firming to test critical 0.71 the figure that guards a much stronger correction

There is a battle going on between the bulls and bears surrounding the Aussie and the US dollar. Bulls are testing the neckline near the current levels at 0.71 the figure. A break here will leave the bulls in good stead for a break of resistance around 0.7135.

AUD/USD News

EUR/USD: Bulls jostle with nearby resistance with eyes on 1.0770

EUR/USD: Bulls jostle with nearby resistance with eyes on 1.0770

EUR/USD pares intraday gains around 1.0700 while stepping back from an immediate resistance line. The major currency pair reverses the previous day’s pullback from the monthly high during Thursday’s Asian session.

EUR/USD News

Gold defends bounce off weekly support near $1,850 ahead of US GDP

Gold defends bounce off weekly support near $1,850 ahead of US GDP

Gold  treads water around $1,855, defending the previous day’s corrective pullback from a one-week-old support line during Thursday’s Asian session as sluggish markets and a lack of major data/events seem to restrict the metal’s immediate moves.

Gold News

What needs to happen for Axie Infinity price to recover

What needs to happen for Axie Infinity price to recover

Axie Infinity price displays reasons to believe in further momentum to the upside. Traders should approach the digital asset with relative caution, looking for one more fake-out before the rally occurs. Axie Infinity price appears to be unfolding as an extended impulse wave down.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Forex MAJORS

Cryptocurrencies

Signatures