BoC Less Dovish has Loonie in Demand

The Bank of Canada strengthened its bias for raising interest rates, retaining its outlier status among the Group of Seven nations, citing rising household debts amid a “moderate” economic recovery.

Policy makers led by Governor Mark Carney kept the benchmark rate at 1 percent where it’s been more than two years and said “some modest withdrawal of monetary policy stimulus will likely be required.” The decision to keep the rate unchanged was expected by all 26 economists in a Bloomberg News survey, while some had also said the Ottawa- based bank would weaken or drop its past wording that higher rates “may become appropriate.”

“While global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion,” policy makers led by Governor Mark Carney, 47, said in a statement today. The statement also made a new reference to “imbalances in the household sector” as influencing the timing of rate increases and said that household debts, already at record highs, will rise further.

Today’s decision follows Carney’s Oct. 15 speech where he left out a reference to tightening monetary policy and said Canada’s exports and investment are being curbed by global weakness. It also contrasts with easier monetary policies introduced in recent months by the U.S. Federal Reserve and European Central Bank President Mario Draghi.

Global monetary policy and “safe haven flows” are influencing the Canadian dollar, the bank said in its statement. Exports are still being restrained by the currency’s “persistent strength,” leaving consumption and business investment to drive the recovery.


“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.”

The highlighted section has replaced the statement “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term.”

Not as dovish as the market wanted.

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell