🏦🇨🇦Cable FX Macro Weekly Note: Bank Of Canada Rate Decision

**As seen in Risk In the Week report 03/03/23, subscribe at cablefxm.co.uk/reports

The Bank of Canada raised the overnight rate by 25bps to 4.5%, this was in line with market expectations and makes it the third-highest cost of capital in the G10 just after N.Z. and the U.S. rates. On the event, the central bank noted that inflation may have peaked as the 3-month rate of prices suggests slower increases. Also, the central bank released its MPR, which showed the board expecting inflation to fall to 3% by mid-2023 and to 2% in 2024. On growth, the BoC is now expecting the economy to expand by 3.6% in 2022 and seen slowing down to 1.0% by 2023. On wages, the central bank noted that the risk of a wage-price spiral has declined as it sees evidence that rate hikes are taking a toll on the economy. After having delivered 425bps of rate increases, the BoC is now seen leaving the cost of money unchanged at 4.50%, however, this does not mean the central bank is set to reverse policy. Implied policy rates see the BoC staying unchanged for the next 12 months. The desk at ING noted that Canadian households’ liabilities are equivalent to more than 180% of disposable income, this compares to 108% in the U.S., meaning Canadian households have a higher sensitivity to rates increases than those in the U.S. and tighter conditions might be more effective. Analysts at RBC expect the central bank to make references to a resilient labour market, but these will be offset by the easing in inflation. RBC noted core inflation measures showing improvement and breadth of price increases continues to narrow. The desk does not see the central bank lifting rates further in 2023.