By Steve Scherer
OTTAWA (Reuters) – The Bank of Canada (BoC) is heading toward a second consecutive quarter-point interest rate hike on Wednesday after a month of economic data revealed resilient growth, a stubbornly tight labor market and sticky underlying inflation, analysts said.
In June, the central bank raised its overnight rate to a 22-year high of 4.75% after a five-month pause, saying monetary policy was not restrictive enough. It then said further moves would depend on economic data.
The BoC will announce its decision on Wednesday at 1000 am ET (1400 GMT).
Data in the past month showed some signs of a slowdown – inflation cooling to 3.4%, a tepid May jobs report and a surprise trade deficit in May. Still, the market expects another rate hike.
Growth has remained resilient and the housing market has showed signs of picking up despite nine rate increases totaling 450 basis points since March of last year. The economy regained momentum in May, likely growing 0.4% on the month, after stalling in April.
Canada added far more jobs than expected in June, according to data published on Friday.
“While the data released since the June meeting suggests that the economy has cooled on the margin, the details have been uniformly stronger,” said Jay Zhao-Murray, FX analyst at Monex Canada. “We expect the BoC to take the policy rate 25 basis points higher to 5%.”
Twenty of 24 economists surveyed by Reuters expect the bank to lift rates by another quarter-point and then hold well into 2024.
Though the headline inflation figure is now less than half of last year’s 8.1% peak, the three-month annualized rates of the BoC’s core measures are just barely creeping lower.
While the BoC’s job is to get inflation to its 2% target, it also aims to take borrowing costs just high enough to bring down costs without sending the economy into a tailspin. Money markets show some are betting on yet another hike by year end.
“Interest rates are already at, or even above, levels that would have prevailed under a more normal hiking cycle,” said Andrew Grantham, a senior economist at CIBC Capital Markets. “Any moves from here should be about fine-tuning policy and responding to most recent data.”
(Reporting by Steve Scherer, additional reporting by Fergal Smith; Editing by David Gregorio)
