The Bank of Canada rate decision is due at 9:45 am ET and it’s an uncertain one.
The market shifted aggressively hawkish after comments from Macklem at the IMF meetings. That now has the market pricing in a 78% chance of a hike today and 31 bps of hikes before year end. That rises to 100 bps in the coming year, which would take the overnight rate to 3.25%.
In Thailand, Macklem said global economies had performed better than expected but that resilience was “under strain” because the effects of emergency oil releases were running out.
“You can only release strategic energy, oil reserves so many times,” he said.
The Bank of Canada will release updated forecasts for the economy and inflation alongside its interest rate decision
Tellingly, Macklem warned that inflation forecasts will be “quite a bit higher” than in July. Those forecasts had shown 2.5% inflatoin this year.
“The question we’re going to be asking ourselves is, is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?” he said.
The Bank of Canada isn’t afraid of surprising the market so there’s real variability around what’s priced in. USD/CAD is up 4 pips to 1.4052 and I would expect a decent move in the currency in any event.
Here were the July inflation forecasts:
- 2026: 2.5%
- 2027: 2.0%
- 2028: 2.1%
GDP:
- 2026: 0.7%
- 2027: 1.8%
- 2028: 1.8%
Energy is going to boost the inflation forecasts but we will look for indications on underlying inflation as well.
This article was written by Adam Button at investinglive.com.