Ahead of the decision, the OIS market was pricing in a 62% chance of a 25 bps hike while economists narrowly favored a 50 bps hike.
- Prior rate was 3.75%
- Prior statement said "the Governing Council expects that the policy interest rate will need to rise further" but this has been dropped
- "Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target"
- There is growing evidence that tighter monetary policy is restraining domestic demand
- Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.
- We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.
- Inflation is still too high and short-term inflation expectations remain elevated
- In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows
- There's no press conference today but the BOC's Kozicki speaks tomorrow at 12:45 pm ET
- Full statement
This is exactly the scenario I laid out in my BOC preview. It's 50 bps but the statement indicates the BOC will now 'consider' rates, which is another word for pausing.
"In terms of a trade, there may be an opportunity to fade a CAD jump on a dovish 50 bps hike," I wrote. CAD rallied on the decision but has given 30 pips back already.
The speech from Kozicki tomorrow is now a bigger event because she will be pressed on whether the BOC is going to pause. I don't expect her to be unequivocal but she will highlight all the tightening in the pipeline and the need to wait and see.
