The Bank of Canada (BoC) did not change their interest rates despite signaling monetary tightening in the coming weeks. What is the cause? 

The issue of inflation hitting a record high in three years is still a major concern for the Canadian central bank. In a monetary policy statement released Wednesday evening, BoC Governor Tiff Macklem left the benchmark interest rate at 0.25%. 

However, Macklem revoked an earlier commitment that said the interest rates would not be raised. With Canada's economy declared fully recovered from the pandemic, There is a hope. 

It is hoped Tgat the statement is expected to open the possibility of a BoC rate hike as early as March 2. In the future, The Board of Governors expects interest rates to be raised.

The Next Meeting May make the Final Decision

In his interview with the media after the BoC's announcement, Macklem reiterated that the BoC's monetary policy was clearly already leading to a rate hike. That has a huge possibility. 

 It's just that, when and how soon, it will only be decided in the next meeting. It also depends on the economic development and the outlook of the Canadian inflation. 

The BoC's policy and Macklem's views this time were judged to be more dovish than market anticipation. There is an impression that Canada's central bank is worried that this month is not yet the right time to raise interest rates.

It is Because That country is again preoccupied with Omicron variant COVID infection which opens up new lockdown policy opportunities. That is for sure not the good situation. 

USD / CAD is Weakening 

Canada's two most populous provinces, Ontario and Quebec, are instead being locked down due to high cases of COVID-19 infection. USD/CAD Weakened because of that. 

It is also especially After the BoC's monetary policy announcement, where the Canadian Dollar was observed to still be superior to the USD. There is a reasonable opinion for that case. 

Canadian is known as one of the oil producers in the world. That position makes CAD has more privilege to the increasing oil prices where now it is reaching the highest level in 7 years. 

When this news was released, that pair slipped down and reached the position of 1.2598. It means that the USD / CAD slipped down by 0.22 percent so far. 

The Signal of Rate Hike from the Fed

In its policy announcement on Thursday morning ( January 27 ), the Federal Reserve kept its benchmark interest rate at 0.25 percent. They also signaled a rate increase in March. 

This decision was taken the following inflation that has continued to rise in recent times. The inflation well above the 2% level and the solid U.S. labor market conditions also increase.

Furthermore , the Fed's policy-making committee expects to make a rate hike soon at its next meeting (in March). March was chosen because the tapering program officially ended that month. 

The Fed decided to double the value of tapering in December 2021 to end the tapering program in March 2022. Jerome Powell also gave his statement for the whole condkgion. 

The Unequal Demand and Order is one of the Inflation Cause

The press conference conducted by the Fed chairman, Jerome Powell, further confirmed the market's view. It is that the U.S. central bank has now shifted to a more aggressive hawkish stance. 

Very high inflation has forced the Fed to abandon the "price pressures are only temporary" narrative. The imbalance between demand and supply has been the culprit for the surge in U.S. inflation so far. 

In addition, the labor market is increasingly solid marked by the unemployment rate which fell below 4 percent; Back to pre-pandemic levels. Market participants' response was mixed.

It was especially after the Fed's policy announcement last night. Wall Street is quite sure that the increasing interest rate hike in March will be followed by the other three increases.