Bank of Canada: October hold despite market pricing – TD Securities

TD Securities’ Macro Research team, led by Robert Both and Emma Lawrence, expects the Bank of Canada to keep its policy rate at 2.25% at the October 28 meeting, despite markets pricing around 20bps of tightening. They argue recent inflation data and growth uncertainty do not justify an immediate hike, but now anticipate rate increases in December and January, with a terminal rate near 2.75%.

October pause before further tightening

"All eyes will be on Wednesday's Bank of Canada decision and whether the Bank follows on Governor Macklem's hawkish comments with the first hike since 2023. We think they hold at 2.25%."

"We look for the Bank of Canada to hold rates at 2.25% in October, despite the recent comments from Governor Macklem after the IMF meetings in Thailand. While we can't rule out a 25bp move after Macklem's roundtable and the subsequent shift in market expectations, we do not think the Bank should be hiking without more evidence of high oil prices broadening into core inflation."

"With ongoing uncertainty over the impact of new trade tensions and threats of further escalation going forward, we think the right move would be to wait for another six weeks for more clarity. If the Bank does hold in October, we also expect to see more hawkish messaging to signal that hikes will be coming soon."

"However, the Bank's recent messaging does indicate more of a forward-looking approach to manage inflation risks, and for that reason we are pulling forward rate hikes to December and January from our previous view for January/March. We still look for the Bank to stop at 2.75%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)