Market Overview

BoC Sees Higher Rates "Less Imminent"


The Bank of Canada's Monetary Policy Report, taken together with this weeks press conference, suggests a more dovish view than the initial statement conveyed earlier in the week. While Governor Carney said that over time “rates are more likely to go up than not” – a more hawkish view than markets had been pricing – he also indicated that the case for interest rate hikes has become “less imminent”.

“The case for adjustment of interest rates has become less imminent,” Carney, 47, told reporters in Ottawa today. “Over time, rates are more likely to go up than not,” he said, adding “to draw more precision out of it than that is false precision.”

Canada's dollar fell after the remarks, which came a day after he kept his key lending rate at 1 percent and said in a statement that “some modest withdrawal of monetary policy stimulus will likely be required.” Carney also reiterated that using monetary policy to curb household debt is “the last line of defense” and he would be clear if he took such a step.

“They are trying to make the point that our next move is going to be up but it's still a long way off,” said Emanuella Enenajor, an economist at Canadian Imperial Bank of Commerce in Toronto. She forecasts no move until 2014.

The Canadian dollar weakened 0.2 percent to 99.39 cents per U.S. dollar at 1:47 p.m. in Toronto. One Canadian dollar buys $1.0061. The currency had gained as much as 0.4 percent. Two- year government bond yields declined 2 basis points to 1.11 percent, while overnight index swaps showing reduced bets on rate increases next year, with them showing 3 basis points of tightening priced in for May, down from 5 yesterday.


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