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BoC Next Rate Hikes are Uncertain as Canadian Dollar Slumps to 18-month Low


December, 06 2018
watermark Economic news

The Bank of Canada maintained the interest rates on Wednesday which is already expected and signals gradual future rate hikes. It pushes the Canadian dollar as low as 18-month low that would affect market expectations on another rate hike next month.

The central bank has raised their rates five times since July 2017 amid the strengthening of the economy that requires monetary tightening in reaching the target 2.0 percent inflation.

Yet, there are downward revisions on growth data from Statistics Canada along with the recent macroeconomic developments. This may mean there is another possibility of non-inflationary growth which can also mean that the economy has not reached the limit as initially thought.

The possibility of a rate hike decreased from an estimated of 60 percent prior to the 36 percent based on the overnight index swaps market.

A higher change in the next move will lengthen the period that also lessens the possibility for a January rate hike, according to the senior rates strategist at TD Securities, Andrew Kelvin.

Overnight interest rate of the bank is at 1.75 percent that is lower than the “neutral” rate of 2.5-3.5 percent. Similarly, the monetary policy is not aggressive or accommodative.

The bank remarked that the “Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target”. Inflation forecast will be lower in the next month than the former forecast as gasoline prices decline.

Yet, the Canadian economy is still in line with the anticipations for the third quarter but momentum will be lesser in the last quarter.


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