The Bank of Canada did not raise interest rates although it gave clear indications in that direction. The Canadian dollar is still strong because it is supported by high oil prices.
The Bank of Canada (BoC) did not change interest rates even though it gave signals of monetary tightening in the next few weeks. The issue of inflation which reached a record high in three years is still the main concern of the Canadian central bank.
In a monetary policy statement released Wednesday (26/January) tonight, BoC Governor Tiff Maccklem left the benchmark interest rate at 0.25%. However, Maccklem revoked his previous commitment saying that interest rates would not be raised. With the Canadian economy declared to have fully recovered from the pandemic, the statement is estimated to open up opportunities for the BoC to increase interest rates as early as March 2.
"Going forward, the Board of Governors expects interest rates to be raised," the BoC's policy statement said.
In his interview with the media after the BoC's announcement, Maccklem reiterated that the BoC's monetary policy has clearly led to an increase in interest rates. It's just that when and how soon will be decided at the next meeting. It also depends on economic developments and Canada's inflation outlook.
The BoC's policy and Maccklem's view this time are considered more dovish than the market anticipates. There is an impression that Canada's central bank is concerned that this month is not yet the right time to raise interest rates. The reason is, Canada is again busy with the Omicron variant of the COVID-19 infection, which opens up new opportunities for a new lockdown policy. Canada's two most populous provinces, Ontario and Quebec, are currently under lockdown due to high cases of COVID-19 infection.
USD/CAD Weakens
After the announcement of the BoC's monetary policy, the Canadian Dollar was observed to be still superior to the US Dollar. Canada's position as one of the world's oil producers makes the CAD benefit from rising oil prices which are currently reaching a seven-year high. At press time, USD/CAD was down 0.22% to 1.2598.
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