The Bank of Canada begins its tightening cycle by lifting interest rates by 25bps - as expected - and signaled more hikes to come in its attempts to tamp inflation down from a three-decade high.
“The policy rate is the Bank’s primary monetary policy instrument. As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further.”
BoC played up economic strength, flagging yesterday’s stronger-than-expected 6.7% fourth quarter GDP growth rate.
“This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed.”
But admitted Inflation is a bigger problem than expected...
“Inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards,” the statement said. “The Bank will use its monetary policy tools to return inflation to the 2% target and keep inflation expectations well-anchored.”
However, no details were offered about the BoC's plan to wind-down its bond holdings.
In a likely taste of what is to come from Powell and his pals at The Fed, BoC added the following to their statement:
“The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty."
Specifically on Ukraine, BoC notes:
“Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.”
The excuses for a pause are being set.
The reaction in the Loonie is very modest (small rise)...
Here is BoC's full redline (quite a dramatic difference)...