BoC Holds Steady, but Hawkish Tone Sparks Market Expectations

The Bank of Canada (BoC) held its interest rate steady at its latest meeting, but delivered a hawkish tone that has some market participants expecting a hike in the near future.

BeiChen Lin, Director and Head of Canadian Investment Strategy at Russell Investments, attributes the BoC's hawkishness to their focus on inflation over growth. However, he believes that there are still several growth-related headwinds that policymakers will need to consider, including the impact of US tariffs on GDP growth.

Lin notes that Canada is currently running a negative output gap between 1-2%, which means there is slack in the economy and any rate hike would likely be damaging to growth. As such, he still expects the BoC to keep interest rates steady for the remainder of this year.