The Bank of Canada is expected to raise its target for the overnight rate for the first time since July 2023 on Wednesday morning.
Economists and markets are forecasting the bank will deliver a 25 basis-point hike, bringing the policy rate to 2.5 per cent, as governor Tiff Macklem has been warning that inflation could become persistent if oil prices remain elevated.
According to RBC, prices of West Texas Intermediate crude oil have averaged $95 a barrel — 54 per cent higher than a year ago — since the last rate decision in early September.
“With both businesses and households beginning to build in higher inflation expectations, it would be very difficult for Canadian central bankers to keep interest rates unchanged,” Royce Mendes, head of macro strategy at Desjardins, said in a note to clients on Friday.
As of Tuesday morning, financial market odds for Wednesday’s announcement were just over 76 per cent in predicting a rate increase, according to data supplied by the London Stock Exchange Group.
But the case for a hike isn’t obvious, with some experts advising against a potentially premature move, arguing that the economy still appears to be hurting from U.S. President Donald Trump’s trade war.
Six of seven economists recently polled by the C.D. Howe Institute called on the central bank to hold the rate at 2.25 per cent in October.
“In our view, the case for the central bank continuing to wait on the sidelines remains compelling,” RBC economists Frances Donald and Nathan Janzen wrote in a note to clients last week.
“The Canadian economy is improving, but still not strong,” they said. “Job growth has disappointed, and there is no evidence that elevated energy prices are bleeding into broader core inflation measures.”
Inflation in September came in above the central bank’s target at 3.1 per cent. However, at the time economists said that “core” inflation measures, which strip out volatility in the data, looked stable.
The Bank of Canada’s rate announcement is scheduled for 9:45 a.m. Eastern Time. It will be followed by a press conference hosted by Macklem and senior deputy governor Carolyn Rogers at 10:30 a.m.
This is a developing story …
