BoC Poised for More Aggressive Rate Hikes Than Peers

Oil price swings have been causing uncertainty for central banks worldwide. The conflict between the US and Iran has led to rising oil prices, which in turn are increasing market bets on interest rate hikes.

The Bank of Canada could raise its policy rate as high as 3.25 per cent next year, according to recent notes from National Bank of Canada strategists. This is higher than what other central banks are predicting for their own rates.

Despite oil prices falling back this week, interest-rate swaps still imply a one-in-three chance of a quarter-point increase by the US Federal Reserve tomorrow. The relationship between oil prices and BoC policy expectations has weakened recently, but remains strong elsewhere.

National Bank is not convinced that the Bank of Canada will need to take its interest rate to 3.25 per cent next year as markets imply. Instead, they think the bank will begin tightening in the first quarter, raising rates to 2.75 per cent by the end of the year.