What To Expect From The Bank Of Canada’s Next Interest Rate Announcement

Key Takeaways

• In the previous meeting, Canada’s central bank kept its key interest rate at 5%.
• The current interest rate is unsustainable for Canadians, and it seems evident that the Bank of Canada will keep the overnight key rate.
• The BoC decision on the interest rate is likely to weaken the national currency—the nearest target for USDCAD is 1.3650–1.3700.

In the previous October meeting, Canada’s central bank kept its key interest rate at 5%. It was the third consecutive rate hold of the year. In Canada, there is growing evidence that past interest rate hikes have dampened economic activity and eased price pressures. Consumption has declined, with lower demand for housing, durable goods, and many services. Lower demand and higher borrowing costs are putting pressure on business investment.

‘The current interest rate is unsustainable for Canadians, and it seems obvious that the Bank of Canada will keep the overnight key rate,’ said Kar Yong Ang, Octa’s financial market analyst. ‘The expectation of a pause and a possible potential rate cut is causing the currency to weaken,’ he added.

The bank’s preferred measures of core inflation show downward momentum, with CPI inflation falling to 4.0% in August, 3.8% in September and 3.1% in October. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Considering the more apparent signs of easing price pressure, it is likely that the Governing Council will hold the policy rate at 5%. Such a decision will weaken the national currency: the near-term target for USDCAD is 1.3650–1.3700.

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