The Bank of Canada (BoC) announced on Wednesday that it hiked its benchmark interest rate by 25 basis points to 4.5% following the January policy meeting. This decision came in line with the market expectation. 

In its policy statement, the BoC noted that it is likely to hold the rate at this level while assessing the impact of cumulative rate hikes.

Market reaction

With the initial reaction, USD/CAD rose sharply and was last seen rising 0.35% on the day at 1.3415.

Key takeaways from policy statement

"Global growth seen declining from 3.6% in 2022 to 1.9% in 2023; US growth to slow to 2.0% in 2022 and 0.5% in 2023."

"Output gap in Q4 was between 0.50% and 1.50%, down from upwardly revised 0.75% to 1.75% in Q3."

"3-month measures of core inflation have come down, suggesting core inflation has peaked."

"Prepared to increase policy rate further if needed to return inflation to 2% target; continuing the quantitative tightening program."

"There is growing evidence that restrictive economic policy is slowing activity, especially household spending."

"Financial conditions remain restrictive but have eased since October; C$ has been relatively stable vs US$."

"Global inflation remains high and broad-based."