Bank of Canada Faces Pivotal Rate Decision Amid Energy Price Spikes
AI-generated image · Bay Street Wire
Market odds shift toward a rate hike as Governor Tiff Macklem warns of inflation pressures driven by global oil costs.
The Bank of Canada is approaching a critical decision this week on whether to raise interest rates, ending a streak of seven consecutive meetings where the policy rate remained at 2.25 per cent, according to reporting from CityNews Toronto.
According to LSEG Data & Analytics, market odds of a rate increase climbed to nearly 78 per cent by Friday afternoon. RBC economists indicated in a client note on Thursday that they anticipate a quarter-point increase. This shift in expectations follows warnings from Bank of Canada governor Tiff Macklem, who spoke at the International Monetary Fund meetings in Bangkok regarding the risk that persistently high global energy prices will inflate the domestic outlook.
Recent data highlights the economic tension facing the central bank. Statistics Canada reported that the annual inflation rate climbed to 3.1 per cent in September, fueled by gasoline price increases linked to the war in the Middle East. Simultaneously, StatCan jobs data revealed a stalling labour market, with the economy losing 68,000 positions in September, marking the second consecutive monthly decline.
Despite the rising odds, RBC assistant chief economist Nathan Janzen told CityNews Toronto that RBC has "very low conviction" regarding an immediate hike. Janzen suggested there remains a significant possibility the Bank of Canada will instead use this meeting to prepare for a rate increase in either December or January.