Bank of Canada raises interest rates by 25 basis points to 0.50% as expected

The Bank of Canada raised interest rates by 25 basis points to 0.50% as expected on Wednesday, adding that it expected it would have to raise interest rates further. The Bank of Canada said it would continue the reinvestment phase of its balance sheet, keeping its overall holdings of Canadian government bonds at about the same level.

Additional takeaway meals:

“The Russian invasion of Ukraine is a major new source of uncertainty.”

“Inflation should now be higher in the near term than expected in January.”

“Price rises have become more pervasive and core inflation measures have all gone up.”

“Persistently high inflation increases the risk that longer-term inflation expectations will drift upwards.”

“The Russian invasion has pushed up the prices of oil and other commodities, which will worsen inflation around the world.”

“Negative impacts on confidence and further supply disruptions could weigh on global growth and financial market volatility has increased. The situation remains fluid.”

“Canada’s first-quarter growth appears stronger than expected, while fourth-quarter growth confirms the bank’s view that the economic slowdown has been absorbed.”

“The BoC will use monetary policy tools to bring inflation back to the 2.0% target and keep inflation expectations well anchored.”

“The BoC will consider when to end the reinvestment phase and start quantitative tightening.”

“Economies are recovering from the Omicron variant of Covid-19 faster than expected. The rebound in Canada seems well underway.

Market reaction

USD/CAD was a little choppy in the immediate reaction to the Bank of Canada rate decision, hovering in a range of around 25 pips in the 1.2660-1.2690 area, but has since faltered. calm. The BoC doesn’t seem to have delivered any surprises, as far as the FX markets are concerned anyway.

Leslie M. Gill