The Bank of Canada is expected to hike its key overnight rate by a quarter of a percentage point to a 22-year high of 5 percent as economic growth continues to fuel a tight labor market and sticky underlying inflation, analysts said. | Reuters
“Inflation has been running above the Bank of Canada’s target for 27 consecutive months and there’s no end in sight,” Desjardins Group economists Royce Mendes and Tiago Figueiredo said in a note.“We expect the Bank of Canada to raise its policy rate to 5 percent and leave the door open to more hikes this fall.”
Twenty of 24 economists surveyed by Reuters expect the central bank to lift rates by another quarter of a percentage point and then hold them there well into 2024. Money markets see more than a 70-percent chance of a rate hike on Wednesday, and are fully pricing in such a move by September. Though headline inflation slowed to 3.4 percent in May, less than half of last year’s 8.1 percent peak, the three-month annualized rates of the BoC’s core measures just barely crept lower.Canada economy adds more jobsDoug Porter, chief economist at BMO Capital Markets, said a rate hike on Wednesday is likely but not a “foregone conclusion” because the BoC could wait until September to increase borrowing costs.
“It just doesn’t seem like the economy has really suffered much from the very steep rate hikes of the past year,” Porter said. “And let’s face it, inflation is still above the Bank of Canada’s 2 percent target.”Subscribe to our daily newsletter
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