Bank of Canada Interest Rate Hike Looms as Markets Price in December Move

Financial markets are pricing in a quarter-point interest rate hike by the Bank of Canada as soon as December, after Governor Tiff Macklem signaled that the bank will act if inflation persists. The latest policy decision left rates at 2.25% for a seventh consecutive time, sparking debate among economists over what the next move should be.

Some forecasters predict multiple quarter-point hikes in the coming years, with Scotiabank calling for rates to reach 3% by 2027. However, not everyone shares this view, with CIBC chief economist Avery Shenfeld saying that trade uncertainty and a softer labour market make it difficult to be definitive about future interest rate moves.

Rosenberg Research & Associates Inc. president David Rosenberg wrote in a note that the Bank of Canada's statement gave doves plenty to work with, pointing to the absence of spillover beyond fuel prices and temporary factors behind second-quarter strength as reasons why rates are unlikely to move higher this year.

TD economist Marc Ercolao echoed this view, saying that stronger-than-expected second-quarter GDP cut the case for easing, while contained underlying pressures left little justification for rate hikes. TD expects a hold through the remainder of the year.