Bank of Canada likely to keep key policy rate on hold in March

The Bank of Canada is set to meet for its policy decision tomorrow. According to a Wells Fargo research report, the central bank is expected to stand pat. During its January meeting, the Bank of Canada had hiked its overnight target lending rate by 25 basis points to 1.25 percent, mainly due to a solid labor market and inflation within the target range.

Although economic growth continues to be strong and inflation is firmly with the central bank’s target range of 1-3 percent, the BoC is expected to stay on hold until the second half of this year. The Bank of Canada has already tightened its policy rate by 75 basis point since July 2017, and is likely mindful of how higher rates would impact consumers.

Highly-leveraged households are already facing higher mortgage rates, and other debt servicing costs might also rise. The central bank also cited ongoing NAFTA negotiations as a risk to the outlook, as the U.S. is Canada’s largest trading partner. On net, the outlook continues to be positive for future rate hikes, although at a gradual rate.

“We acknowledge some upside risk to our forecast, should growth pick up or NAFTA negotiations result in a more favorable outcome for Canada”, added Wells Fargo.

At 21:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at 4.6344, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -34.1234. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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