Bank of Canada likely to hike overnight rate by 25 basis points in July

The Bank of Canada is set to meet tomorrow for its policy rate decision. According to a TD Economics in a research report, the Canadian central bank is expected hike the overnight rate by 25 basis points, which is widely consistent with consensus expectations.

The BoC’s description of recent economic activity is likely to be constructive which might give the communique a hawkish tinge, but the BoC is expected to remain intensely data dependent going forward, stated TD Economics.

As such, tomorrow’s communique might not restrain the Governor in September or October. Both growth and inflation have evolved around the line with the central bank’s projection from April. Therefore, any considerable alterations are not expected in their economic outlook.

Governor Poloz had mentioned that they would only incorporate announced trade measures into their projection and not the threatened auto tariffs, so the effect from trade uncertainty should be small compared to earlier assumptions. Still, the tightening path might stay very gradual, and if the economy slows down into the second half of this year they could easily remain on the sidelines for the remainder of the year, added TD Economics.