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Bank of Canada raises interest rate by 100 basis points to 2.5%

  • Bank of Canada surprises with higher-than-expected rate hike.
  • The CAD appreciates throughout the market.

The Bank of Canada (BoC) raised its benchmark interest rate by 100 basis points to 2.5%, generating a surprise as an increase of 75 points was expected. The Canadian dollar rose in the market after the decision was known.

The Canadian central bank said it has underestimated inflation since last year, due to international factors. Among the factors that contributed to failing with inflation they cite the rise in commodities, and supply problems and higher transportation prices. A quarter of the forecast failure was due to domestic factors, mainly rising costs in the real estate sector.

“The inflation is being higher and more persistent than expected in the April projections, and will possibly remain above 8% in the coming months”, explained the BoC.

Regarding interest rates, they indicated that they will need to rise more and that the pace will depend on the bank’s perception of the economy and inflation.

The USD/CAD fell from 1.3020 to 1.2945, but then moderated the decline. The dollar is rising in the market driven by US inflation data.

Source: Fx Street

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