Analysts are coalescing around the idea that the BOC will hike by a quarter percentage point (or “one hike” as it used to be) at the next meeting. Some traders may be interested in this because of the economic connection between Canada, the US and Canada. Both countries have a major problem with high inflation. However, the Fed’s November CPI report is available the day before the meeting. That could have a significant impact on expectations. The Fed and the BOC have similar economic outlooks so the reasoning that the Macklem might use could give an insight into what Powell might be saying.
Canada took a stronger stance than the Fed by raising its benchmark rate by one percentage point in July. Inflation has been falling faster in Canada than it did in the US. The BOC has gradually eased its tightening since that percentage point increase, increasing 50bps at the most recent meeting. This would mean it could hike 25 bpts, then pause at its next meeting in January.
The rapidly deteriorating situation
The economy grew by a surprising 2.9% in the summer, which was well above the BOC’s estimate of 1.5%. It was a strong argument for the higher rates. But,…