Bank of Canada: Further tightening risk highlighted – Rabobank

Rabobank's Senior Macro Strategist Bas van Geffen reports that the Bank of Canada raised rates in response to persistent energy-driven inflation. Governor Macklem framed the move as containing the risk of broader price pressures, with inflation projections lifted notably for this year and 2027. The policy statement signals that additional rate increases may be needed, and strategists expect another hike in December.

Energy shock drives BoC rate hike

"Elsewhere, concerns about the energy shock elicited a rate hike from the Bank of Canada, which had held off from responding to energy price shock until yesterday. Governor Macklem explained that this move is to contain the risk that persistently high energy costs spread more broadly into consumer prices: “the combination of higher-for-longer energy prices and increased pass-through adds to the persistence of inflation in the projection.”"

"Indeed, the Bank of Canada raised its inflation projections substantially. It now forecasts 2.9% inflation this year instead of 2.5%. Moreover, the central bank’s economists added a whopping 1.1 percentage points to their 2027 forecast, lifting the inflation estimate from 2.0% to 3.1%."

"Unsurprisingly, then, the policy statement closes with the comment that “there could be a need to increase the policy rate further,” which suggests that this may not have been a one-and-done hike. Our Canada strategists have therefore pencilled in another rate hike in December."

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