There are, thankfully, only a couple of hours more to wait before the Bank of Canada’s interest rate decision and little than can be usefully added to the debate so close to the announcement at 10am local time in Ottowa. For the last 48 hours, USD/CAD has traded sideways in a 50 pip range from just 1.2405 to 1.2555.
To sum up the current state of expectations this week, just eight of 31 analysts surveyed on Monday said they expect the BoC to hold rates steady at 1.0% at today’s meeting with 23 looking for a 25bp hike to 1.25%. Looking forward, the median forecast is for one rate increase apiece in the third and fourth quarters, bringing the benchmark to 1.75% by the end of 2018. Analysts predict another hike in the first quarter of 2019.
Over the past 25 years, Canada’s main policy rate has been on average around 25bp higher than the US rate. At the moment it’s 0.375 percentage points below, so there could be some catching up to do. The Bank of Canada estimates its so-called neutral rate - which allows the economy to run neither too hot nor too cold - at about 3%. The Federal Reserve sees its neutral rate at 2.75%, according to the median estimate in their most recent projections in December.
The way the information on rates is released is as follows: From 7am -10am, journalists are invited to review the Rate Announcement press release and the Monetary Policy Report, under embargo, at the Bank’s head office in Ottawa. A briefing session on the Report will take place during the lock-up. At 10:00 (ET), the lock-up ends, the embargo is lifted and the rate announcement press release and the MPR will be available on the BoC’s website. At 11:15, Stephen S. Poloz, Governor of the Bank of Canada, will hold a press conference in the auditorium. He will be accompanied by Senior Deputy Governor Carolyn A. Wilkins.
As the long wait draws to an end, the Canadian Dollar opens in North America this morning at USD1.2435 and GBP/CAD1.7160.