Ahead of the Bank of Canada’s policy rate decision Wednesday, a report from BofA Securities said it expects the central bank to hold its policy rate after raising rates in June.
The report from BofA Securities, released Tuesday, said it expects the Bank of Canada to keep its policy rate 4.75 per cent on Wednesday due to inflation and core inflation both trending downward. Additionally, the report said that it appears the unemployment rate has “bottomed out.”
Most economists tracked by Bloomberg expect the Bank of Canada to bring its policy rate to five per cent at its July decision. Last month, the Bank of Canada increased its policy rate by 25 basis points to 4.75 per cent in a surprise move.
“However, we believe monetary policy acts with lags, and it is not clear at this point that the BoC needs to hike more. The main problem for inflation remains on the labour market, but immigration is helping significantly on the supply side,” the report said.
While the report’s authors expect a rate pause, they highlighted the possibility of a rate increase and said the market is “pricing in a 75 per cent chance” of an interest rate hike at the Bank of Canada’s July meeting.
“But it is a close decision as the BoC may hike 25bp [basis points] again to make sure inflation converges to the target (increasing the risks for economic activity and for financial markets),” the report said.
“The BoC may be concerned that the economy and job creation may still be too hot to control inflation.”
