BoC: No tendency to follow hawkish tone from the Fed – CIBC
08.03.2023, 17:55

BoC: No tendency to follow hawkish tone from the Fed – CIBC

On Wednesday, the Bank of Canada (BoC), as expected kept its key interest rate unchanged at 4.50% as expected and made small changes to its forward guidance. Analysts at CIBC point out the BoC will keep their focus on the Canadian economy after showing no concern over a larger gap to US rates.

Bank of Canada keeps its eyes on the home front

“Markets were reminded that the Bank of Canada is going to keep its eyes on the home front, as the central bankers showed no tendency to follow the increasing hawkish tone from their counterparts in Washington.”

“The absence of any stated concern over a larger gap to US rates, or the resultant recent weakening in the Canadian dollar, adds weight to our view that rates can stay on hold north of the border even as the Fed has signalled another 75 basis points to come.”

“Other than a reference to the US dollar strengthening (i.e. against other currencies in general), the Bank didn't highlight any concerns about a pass through to Canadian inflation from a weaker loonie. Canadian short term rates had drifted up in recent days as markets judged that a more hawkish Fed, and the resulting foreign exchange rate moves, might drag the Bank of Canada back to the rate hiking table, and today's statement could see a bit of that unwind.”

“A no-surprise statement from the Bank of Canada relative to our expectations naturally implies no change to our view that we're done with rate hikes on this side of the border.”

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