Bank of Canada Rate Decision Preview

This Wednesday at 1500 GMT, the BOC is expected to raise its benchmark interest rate to 0.50% from 0.25% (an all-time low) for the first time since October 2018. There is no press conference following the March meeting.

At its January meeting, the central bank left the key rate unchanged at 0.25% from the final decision of 2021, announced in December.

The BOC, however, removed its exceptional forward guidance on its policy interest rate, citing that the overall economic slack from the coronavirus pandemic had now been absorbed.

The chances of a 50-bps move are slim given the recent somewhat disappointing employment report, and the ongoing truckers protest that could dampen the economy, not to mention the Ukraine fallout.

Heading into the monetary policy meeting, the country’s consumer price inflation accelerated to 5.1% YoY in January from 4.8% in December, hitting the highest level since 1991. Meanwhile, Canada’s unemployment rate rose to 6.5% in January, the first increase in the jobless rate since April 2021, thanks to the shutdowns related to the Omicron variant.

Canada’s Current Account was a C$ 0.8B deficit in Q4 2021, according to data released by Statistics Canada on Monday. That was well below the expected surplus of C$ 4.8B and marked a drop from Q3’s C$ 0.8B surplus.

Also important for the loonie will be the outcome of the OPEC+ meeting on Wednesday. The OPEC-led alliance of major producers, including Russia, is not expected to accelerate its plan to gradually undo the 2020 supply cuts despite oil prices shooting higher.

“One support for the CAD recovery is likely to be the expectation that Canada, as a commodity country, will benefit from significantly higher commodity prices. In this context, Putin’s war in Ukraine and the high uncertainty fuel the expectation that the supply shortage, will continue or even worsen – with the consequence of further rising (commodity) prices.” Commerzbank report.