Bank of Canada Interest Rate Hike Odds Shift Towards October

Market expectations are shifting towards a possible interest rate hike by the Bank of Canada in October. This change is largely driven by concerns over persistently high global energy prices, tied to the ongoing war in Iran.

Claire Fan, senior economist at RBC, notes that bond market pricing can be seen as a consensus expectation for central bank decisions and also serves as a barometer for how market participants view fresh economic data. According to LSEG Data & Analytics, odds of a rate hold were pegged at 94% before the Bank's September decision.

Odds now stand narrowly in favour of a hike as of Thursday afternoon. The shift in odds toward a possible October hike are likely a reflection of the Bank's governing council being worried that oil prices will stay high for longer, which increases the risk to inflation. Rising global bond yields also contribute to market expectations turning toward rate hikes.