Canadian interest rate hike could possibly drive the Canadian dollar higher in gain
Canadian interest rate hike could possibly drive the Canadian dollar higher in gain
The Overnight Rate is the interest rate at which major financial institutions in Canada borrow and lend overnight funds among themselves.
Short-term interest rates are predominant factors in currency valuation. This is highly correlated with the economic outlook as its changes can impact both inflation and recession.
Two years into the COVID-19 pandemic, government responses still have gaps that fail to include some small businesses hit hardest by lockdowns and renewed restrictions tied to the Omicron wave, as Canadian restrictions to tackle COVID-19 will likely come at a cost of slower economic growth at the start of the year than other developed economies, notwithstanding that has not stopped investors from raising bets on interest rate hike.
With the Bank of Canada set to be the first major central bank to hold its first policy meeting of 2022, Experts are expecting an interest rate rise of at least 25 basis points to 0.5% which has remained at 0.25% after it was lowered from 1.75% in March 2020, as Senior economist Jean-Francois Perrault believes central Bank of Canada could be forced to act sooner than anticipated and forecast rate to hit 2% by the end of 2022.
Last month, the Bank of Canada signaled that it could hike its interest rates as soon as April 2022. In its deliberation, due to high energy prices and supply chain bottlenecks, they speculated that inflation would stay above 4.8% target in the long-term next year and then ease to 2.1% in the fourth quarter of 2022. In response to the hawkish statement, the Canadian Dollar gained higher at 0.4% against the US Dollar(greenback).
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