Bank of Canada Rate Hikes Predicted to Reach Three Percent

Investors have increased their bets that the Bank of Canada will hike interest rates in December and beyond, with rates peaking at three per cent. This prediction is based on overnight swaps market data, which shows nearly 90 per cent of investors betting on a 25-basis-point hike in December.

The probability of a rate hike in January has also increased to near certainty, with some investors betting on as many as three hikes by mid-year. Desjardins Group's Royce Mendes thinks the market is being overly aggressive, calling for 50 basis points of rate hikes in the first half of next year.

Mendes' forecast is based on his assessment that the Bank of Canada is more worried about inflation leaking into other parts of the economy. He notes that policymakers have given a lukewarm assessment of the prospects for monetary easing, which would likely take severe economic stress to materialize.