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...
On possible balance sheet reduction...
Economic/financial commentary...
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.
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