Bank of Canada Hike Pressure Builds as Inflation Risks Escalate

The Bank of Canada is facing growing calls to hike interest rates at its next meeting in October. The central bank has held its benchmark-setting rate steady at 2.25 per cent since last October, keeping it at the bottom end of its neutral range.

Bank of Canada governor Tiff Macklem recently stated that the risks of inflation rising were increasing, a shift from his previous stance. This change in perspective has led several economists to revise their predictions for interest rate hikes.

UBS Global Research economist Abigail Watt is now calling for one 25-basis-point hike in October and another in January, followed by a prolonged hold once the policy rate reaches the midpoint of the neutral range. This is a shift from UBS's previous forecast, which predicted no rate hikes until next year.

Manulife Financial and Oxford Economics Ltd. have also moved up their calls for rate hikes to be made in October. However, Watt emphasizes that the Canadian economy doesn't need aggressive action on rates, citing recent GDP data that suggests growth is showing signs of life.