A majority of traders on Bay Street now expect that the Bank of Canada will raise interest rates
by 75 basis points at its next policy meeting in July.
Trading in overnight swaps shows there’s an 80% chance that Canada’s central bank will lift
interest rates by three-quarters of a percentage point at its July 13 decision. If accurate, that
would bring Canada’s trendsetting interest rate to 2.25%.
A week ago, only half of traders expected a 75-basis point rate hike from the Bank of Canada in
July.
The change in expectations comes as inflation in both Canada and the U.S. continues to run at
the highest levels in more than 30 years. In the U.S., most financial institutions expect a 75-
basis-point rate hike from the U.S. Federal Reserve this week.
Canada’s next inflation report, which comes out on June 22, will be a key consideration for the
Bank of Canada heading into its July interest rate decision. Most economists expect consumer
prices to continue rising from the yearly pace of 6.8% recorded in April.
The Bank of Canada has already raised the overnight rate from an emergency low of 0.25% in
March to 1.5% today. Markets expect interest rates in Canada will rise to 3.50% by year’s end.
