Expectations are growing that the Bank of Canada will raise its key interest rate this week, as rising energy prices put pressure on the economy. As of Friday, financial markets placed the odds of a rate hike at nearly 78%, according to LSEG Data & Analytics. The central bank has kept its policy rate at 2.25% for seven straight meetings.
RBC economists now anticipate a quarter-point increase, calling it a “pivotal decision amid evolving economic conditions.” However, they also express “very low conviction” and see a strong possibility that the Bank of Canada may delay the hike until December or January instead.
Recent data shows mixed economic signals. Last week, Statistics Canada reported that the annual inflation rate climbed to 3.1% in September, driven by higher gasoline prices due to the ongoing war in the Middle East. Meanwhile, jobs data from StatCan revealed the labor market stagnated for a second consecutive month in September, with the economy shedding 68,000 positions.
RBC assistant chief economist Nathan Janzen noted that Bank of Canada governor Tiff Macklem’s recent comments shifted market expectations. Speaking at the International Monetary Fund meetings in Bangkok, Macklem warned that sustained high global energy prices could elevate inflation at home. Janzen added that Macklem’s remarks underscored the central bank’s growing concern about the broader inflationary impact of rising oil prices.