BoC Holds Rates Steady

Bank of Canada Rate Decision
Actual: 4.25%
Expected: 4.25%
Previous: 4.25%
As was heavily expected by economists and traders alike, the Bank of Canada’s monetary policy group decided to keep the nation’s overnight lending rate unchanged at 4.25 percent. While the ultimate outcome was divined by speculators, the print comes as somewhat as a surprise given the string of positive indicators that had preceded it. For the markets and policy makers, a surprise 1.0 percent jump in retail sales excluding autos and an acceleration in headline inflation from 2.0 percent to 2.3 percent in the year through March both raised the stakes. However, with their rate decision, the central bank also addressed these two subjects in a brief statement. For inflation, the central bank raised some hawkishness when the group said though the risks for inflation were balanced, there was a ‘slight tilt’ to the upside. The BoC expects inflation to exceed 2 percent in the second half of 2007 and return to 2 percent in 2008. The deciding factor though from a greater warning though was most likely their note that inflation for the period was largely a product of food and gasoline.
In the minutes after the release, USDCAD jumped 25 points to 1.1230 as traders saw the modest inflation warning as a passing effect.