Bank of Canada overnight rate 4.75% vs 4.50% prior

• Prior was 4.50%
• The market was pricing a 60/40 chance of a hold ahead of the decision
• The Bank of Canada last hiked rates in January

Statement highlights:

• underlying inflation remains stubbornly high
• Canada’s economy was stronger than expected in the first quarter of 2023
• Consumption growth was surprisingly strong and broad-based
• Spending on interest-sensitive goods increased and, more recently, housing market activity has picked up
• The labour market remains tight
• The Bank continues to expect CPI inflation to ease to around 3% in the summer
• concerns have increased that CPI inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term could get stuck materially above the 2% target.
• The statement no longer says the BOC "remains prepared to raise the policy rate further if needed to return inflation to the 2% target"

Key passage from the statement:

The Bank continues to expect CPI inflation to ease to around 3% in the summer, as lower energy prices feed through and last year’s large price gains fall out of the yearly data. However, with three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.

This looks like a one-and-done hike with the final paragraph no longer saying the BOC "remains prepared to raise the policy rate further if needed to return inflation to the 2% target". Instead it says:

Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.

That's still a hawkish bias but it's certainly not as explicit and is a warning against pricing in further rate hikes beyond 4.75%, though the market is 50/50 on a July hike currently. Of course, that will depend on how inflation numbers and economic growth develop. The next BOC meeting is on July 12 and will include fresh forecasts via the Monetary Policy Report.

Tomorrow we will hear from BOC deputy Paul Beaudry and he will shape expectations further and explain this decision.

USD/CAD kicked lower to 1.3322 on the decision but has pared that to 1.3338 last.