Bank of Canada expected to hike by 25 basis points

The Bank of Canada is set to announce its Interest Rate Decision on Wednesday, July 12 at 14:00 GMT. The BoC is expected to hike rates by 25 basis points (bps) to 5.00%, contrary to its pause hints1. The decision will be published alongside a Monetary Policy Report, containing updated economic and inflation projections.

Economists suggest that the latest round of Canadian economic data is in, and it’s unlikely to deter the BoC from hiking rates again in July. Nothing in the data on employment, inflation, GDP, or the second quarter release of the BoC’s own Business Outlook Survey showed sufficient evidence of slowing consumer demand to convince the BoC another hike isn’t needed.

The path for the overnight rate, beyond the expected 25 bps increase in July, remains very uncertain. July’s increase is also expected to be the last of this cycle.

May’s drop in employment was nothing more than a statistical anomaly related to volatility in youth employment. The rebound in jobs during June and an unemployment rate that is still low relative to pre-pandemic norms may have just tipped the scales towards an immediate hike. It is noteworthy that there is enough momentum in the economy and labor market to tilt the scales toward another 25 bps hike.