The Bank of Canada has twice raised interest rates by half a point in recent months, to 1.5% in June, and its governor, Tiff Macklem, has indicated he is ready to act “with more vigor”.
Economist Josh Nye of RBC Economics believes Tiff Macklem is now even more likely to emulate the Fed.
“One of the main arguments for the bank not acting more aggressively was simply that the Fed shouldn’t be so aggressive because they said before this week that they wouldn’t make those big hikes,” he explained.
“While this was widely thought to reduce the likelihood of the Bank of Canada making a major rate hike, I think the fact that the Fed is now trading more aggressively today by 75 basis points reduces the likelihood of the Bank of Canada doing the same , really increased. »
As people started forecasting the Fed for a bigger rate hike last week, Josh Nye saw expectations for the next two Bank of Canada rate hikes soar, as well as bond yields.
CIBC economists Avery Shenfeld and Andrew Grantham agree on the probability of a three-quarters-point increase in Canada.
They expect the Bank of Canada’s interest rate to hit 2.75% this year before slowing growth and inflation convince the bank to halt raising interest rates, they said in a note to investors.
Josh Nye also predicted the rate would hit 2.75% this year, but added that it could reach as much as 3.0% if inflation doesn’t slow.
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