The Bank of Canada delivers the week’s one expected move this morning. The decision and the quarterly Monetary Policy Report arrive together at 09:45 ET, and the question is whether the Bank raises the overnight rate by 25 basis points to 2.50 percent, ending a hold at 2.25 percent that has run all year, or waits while signalling that a hike is coming.
The poll and the pricing lean to a hike, without conviction. Nineteen of 34 economists surveyed by Reuters between October 21 and 23 expect a rise to 2.50 percent today and a majority expect one more by the end of March, a reversal from the previous poll, in which 80 percent expected a hold through 2026. Interest rate futures moved from pricing a 30 percent chance of an October hike to around three in four. Among the big banks, Manulife, Desjardins, RBC, National Bank and CIBC now call an October hike, several having moved their calls in the past ten days, while TD Economics expects a hold, arguing that planned business price increases are taking time to reach consumer prices.
The trigger was the Bank’s own surveys and Governor Tiff Macklem’s reading of them. Headline inflation rose to 3.1 percent in September, just above the 1 to 3 percent target range, and the business outlook survey showed sharply rising inflation expectations ahead of the breakdown in trade talks with the United States. Desjardins’ Royce Mendes said the survey responses, which the Governor had seen before publication, explain both Macklem’s weekend remarks, read by markets as a hint that a rise is coming, and the wave of changed forecasts that followed.
The case against moving today is the real economy. Core inflation measures eased below 2 percent, the economy was flat in July, unemployment stands at 6.4 percent with the slowest wage growth since 2017 outside the pandemic, and tariffs threaten to roughly halve fourth quarter growth to below 1 percent. Danske Bank, expecting the hike, calls it a pre-emptive move to stop energy led inflation from spreading, with the focus on how far the Monetary Policy Report revises the inflation forecast higher. The Canadian dollar has not pre-paid for the decision: USD/CAD stood at 1.4057 in this site’s tables, up 0.32 percent on the day, so a hold would land as a dovish surprise against three in four pricing.