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National Bank of Canada’s analyst, Paul-André Pinsonnault, explained that they see the Bank of Canada raising rates at the October meeting and then, staying on the sidelines until the first quarter of next year.  

Key Quotes:

“Mr. Poloz reports the economy running at capacity and inflation close to target. Add the USMCA to the mix and the BoC governor will be hard-pressed to justify leaving the Bank’s target policy rate unchanged October 24. Especially considering that the bond market is priced for a rate hike.”

“Looking past the October rate announcement, we expect that federal finance minister Bill Morneau will take advantage of the government’s fall fiscal update to encourage investment in the domestic economy by corporate Canada. And with an election a year away, more support for the so-called middle class could be coming in 2019. Depending on the heft of these fiscal stimuli and assuming the BoC is on the mark with its July inflation forecast of 2.1% in both 2019 and 2020, we see the overnight rate at 2.50% (the low end of the BoC’s estimated neutral-rate range) by July of next year.”

“We continue to see the BoC hiking in October and three times more in 2019.”