Bank of Canada Rate Hike Odds Soar on Inflation Fears and High Energy Prices

The Bank of Canada may be poised to hike interest rates for the first time in nearly a year, with odds of a rate increase jumping after the recent U.S. Federal Reserve decision to raise its benchmark rate.

While many economists are still skeptical about a rate hike this year, concerns over persistent inflation have led some to predict that the central bank will start tightening monetary policy as early as October.

Claire Fan, senior economist at RBC, notes that bond market pricing is often seen as a barometer for central bank decisions and can provide insight into how market participants view fresh economic data.

The shift in odds towards a possible rate hike is largely driven by persistently high global energy prices, which are tied to the ongoing conflict in Iran, Fan said. The Bank of Canada's governing council was concerned about higher oil prices staying for longer, according to its recent decision summary.