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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)
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