Breaking: BoC keeps interest rate unchanged at 5% as expected


The Bank of Canada (BoC) announced on Wednesday that it left the benchmark interest rate unchanged at 5% following the September policy meeting. This decision came in line with the market expectation.

In its policy statement, the BoC repeated that it remains concerned by the persistence of underlying inflationary pressure and noted that it is prepared to raise rates again if needed.

BoC policy statement highlights

"There has been little recent downward momentum in underlying inflation; recent CPI data indicate inflationary pressures in Canada remain broad-based."

"With the recent increase in gasoline prices, CPI inflation is expected to be higher in the near term before easing again."

"Will continue to assess dynamics of core inflation and the outlook for CPI inflation."

"With measures of core inflation still elevated, major central banks remain focused on restoring price stability."

"Decided to keep rates at 5% given recent evidence that excess demand in economy is easing, and given lagged effects of monetary policy."

"Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures."

"Tightness in the Canadian labor market has continued to ease gradually, but wage growth remains around 4% to 5%."

International oil prices are higher than was assumed in the July monetary policy report.

BoC rate decision market reaction

USD/CAD pair declined toward 1.3600 with the immediate reaction to the BoC policy announcement, before quickly recovering back above 1.3650.

Canadian Dollar price today

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

USD   0.03% 0.50% -0.02% -0.22% 0.07% 0.07% 0.28%
EUR -0.02%   0.45% -0.01% -0.23% 0.00% 0.09% 0.28%
GBP -0.48% -0.45%   -0.48% -0.67% -0.47% -0.36% -0.17%
CAD -0.03% -0.01% 0.54%   -0.19% -0.05% 0.08% 0.25%
AUD 0.17% 0.21% 0.68% 0.19%   0.20% 0.27% 0.47%
JPY -0.03% -0.02% 0.45% -0.05% -0.24%   0.07% 0.26%
NZD -0.12% -0.10% 0.39% -0.13% -0.33% -0.13%   0.17%
CHF -0.29% -0.28% 0.22% -0.31% -0.51% -0.28% -0.18%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


Economic Indicator

Canada BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

Read more.

Next release: 10/25/2023 14:00:00 GMT

Frequency: Irregular

Source: Bank of Canada

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

  • The Bank of Canada is forecast to leave the policy rate unchanged at 5.0% on September 6.
  • BoC policymakers are expected to keep the interest rate steady until the end of the year.
  • BoC policy statement could ramp up volatility around the Canadian Dollar.

The Bank of Canada (BoC) is widely expected to leave its policy rate unchanged at 5% when it concludes the September policy meeting on Wednesday, following the 25 basis points rate hike announced in July. The Canadian Dollar has been struggling to find demand since the previous BoC policy meeting and has lost nearly 2.5% against the US Dollar. 

The BoC’s latest Participants Survey, published on July 24, showed that most market participants expected the bank to hold its policy rate at 5% until the end of 2023. Moreover, participants also forecast the BoC to reduce the key interest rate to 3.50% in the fourth quarter of 2024.

Bank of Canada interest rate expectations: Steady policy as activity slows

The BoC had a batch of data releases to assess since the July meeting as it looks to set the monetary policy in a way to tame inflation, while limiting the damage to the economy.

After declining to 2.8% in June, the annual Consumer Price Index (CPI) inflation climbed to 3.3% in July. In the meantime, the Canadian economy stagnated in the second-quarter, following a 0.6% (QoQ) real Gross Domestic Product (GDP) growth recorded in the first. This reading came in below the market expectation for a 0.3% expansion. On a monthly basis, Canada’s real GDP contracted by 0.2% in June. 

Analysts at TD Securities (TDS) said that the latest GDP figures reaffirm that the BoC will opt to leave the policy rate unchanged:

“The below consensus print on Q2 GDP should give the Bank of Canada enough conviction that its rate hikes are working to step back to the sidelines in September, especially with interest sensitive parts of the economy leading the slowdown. The monthly figures for June & July also leave Q3 GDP tracking well below BoC projections which should help make the Bank's decision a little easier next week.”

The BoC is likely to leave its policy unchanged to buy more time to assess the developments. Rising energy prices since August could cause the bank to adopt a cautious stance regarding the inflation outlook in its policy statement. Signs of cooldown in the labor market and consumer activity, however, could force the BoC to refrain from leaving the door open to additional policy tightening. Retail Sales ex Autos declined 0.8% in June, while the Unemployment Rate ticked up to 5.5% in July from 5.4% in June. 

When will the BoC release its monetary policy decision and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday, September 6, at 14:00 GMT. The policy decisions will not be accompanied by the central bank’s updated forecasts and there will not be a press conference by Governor Tiff Macklem following the release of the policy statement.

The Canadian Dollar (CAD) lost nearly 2.5% against the US Dollar since the BoC’s July meeting. Markets seem to have already priced in a no-change in the bank’s policy settings in September. At this point, a 25 basis points rate hike in response to stronger-than-forecast July CPI readings would be a significant hawkish surprise. Such a decision, however, is very unlikely given the gloomy economic climate.

If the BoC notes that it could consider another rate increase in case inflation proves to be more persistent than estimated, the initial market reaction could provide a boost to the CAD and trigger a leg lower in USD/CAD. 

On the other hand, USD/CAD could extend its uptrend if the BoC puts more emphasis on the growth outlook, while maintaining a neutral stance on inflation. In this scenario, even if a ‘buy the rumor sell the fact’ market reaction could initially weigh on the pair, it is unlikely to be persistent enough to trigger a downtrend.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the USD/CAD pair and writes:

“The Relative Strength Index (RSI) indicator on the daily chart climbed above 70 this week, suggesting that USD/CAD could stage a downward correction before the next leg higher. Nevertheless, the bullish bias remains intact in the near term outlook."

Eren also outlines important technical levels for USD/CAD: “1.3600 (psychological level) aligns as interim support ahead of 1.3550 (20-day Simple Moving Average), 1.3500 (psychological level) and 1.3450 (200-day SMA). On the upside, 1.3700 (psychological level) could be seen as first resistance before 1.3750 (static level from April) and 1.3860 (2023-high set on March 10).

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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