BoC Raises Rate By 25 Bps, Signals It May Be The Last Hike

Vladimir Zernov
Published: Jan 25, 2023, 15:37 UTC

USD/CAD moved higher after the release of the interest rate decision as traders reacted to dovish signals from BoC.


In this article:

Key Insights

  • Bank of Canada announced its Interest Rate Decision, which was in line with analyst estimates. 
  • The Bank’s Monetary Policy Report shows that BoC believes that inflation will return to the 2% target in 2024.
  • BoC signaled that it will not push the rate above the 4.5% level if the economic situation develops in line with its current forecasts. 

Bank Of Canada Raised The Interest Rate To 4.5%

On January 25, The Bank of Canada raised the interest rate from 4.25% to 4.5%, in line with the analyst consensus. BoC added that it would continue its policy of quantitative tightening.

BoC expects that Canada’s GDP will grow by about 1% in 2023 and about 2% in 2024. There were no major changes compared to the previous outlook, which was released in October.

According to the Monetary Policy Report (MPR), inflation is projected to fall to around 3% in the middle of 2023 and reach the 2% target in 2024.

Importantly, BoC signaled that it may leave the interest rate at current levels: “If economic develoments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”

Canadian Dollar Retreats After Dovish Signals From BoC

USD/CAD moved back above the 1.3400 level as BoC signaled that it may leave the interest rate at 4.5%. The Fed is expected to keep raising rates in the near term, so BoC’s signal was dovish.

Not surprisingly, Canadian dollar found itself under pressure after the release of the BoC Interest Rate Decision. USD/CAD has been consolidating near the 1.3400 level, and it has a decent chance to gain upside momentum in the upcoming days.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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