Financial markets betting on BoC rate hike next week despite subdued inflation data — SkimNews
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- Interest rate swap markets priced in roughly an 80% chance the Bank of Canada raises its benchmark rate by a quarter-point at the Oct. 28 decision, up from about 35% on Friday, according to Bloomberg data.
- Bank of Canada Governor Tiff Macklem told reporters Saturday that oil prices near US$100 would push inflation gradually above 3%, and said the bank will ask itself whether it must raise rates to nudge inflation back toward its 2% target — prompting an expected upward revision to the bank's inflation forecast later this month.
- Statistics Canada reported September inflation at 3.1% (up from 3%) driven by a 6.1% monthly gasoline spike, beating Bay Street forecasts, while underlying inflation eased — ex-energy inflation fell to 2.2% from 2.4%, the BoC's two preferred core measures dropped to 1.9% and 1.8%, and grocery inflation fell to 1.7% from 2.8%.
- Bank of Canada surveys released Monday showed a sharp uptick in long-term consumer inflation expectations tied to tariffs and gasoline prices, while roughly half of firms said they plan to pass on cost increases from the Middle East war and tariffs over the next 12 months.
- Several Bay Street forecasters shifted their Oct. 28 calls from hold to hike — still a minority view among analysts — while the BoC has held its policy rate at 2.25% for the past year.
- RBC economist Claire Fan flagged that the past two Canadian jobs reports were "notably weak" and called fragile recovery the biggest counterweight to inflation risks, but said risks to the base-case forecast of no hikes until 2027 are "tilted toward earlier moves — including potentially as early as next week's decision."
Why it matters: Canadian borrowers face a live rate-hike decision on Oct. 28 after a year of policy stability, with swap markets pricing an 80% probability of a quarter-point move despite underlying inflation actually cooling. A hike would compound the drag from two weak jobs reports and rising bond yields, tightening financial conditions for households and businesses already wrestling with U.S. tariffs.
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