Bank of Canada leaves door open for another rate hike - Rabobank

The Bank of Canada as expected, left interest rate unchanged after today’s meeting. Analysts at Rabobank see limited room for further tightening and expect a maximum of three more hikes in the next year which would lead to a terminal rate below Bank’s expectations of closer to 3%.

Key Quotes: 

“The decision was not accompanied by a press conference or a new Monetary Policy Report (MPR) but we will see a new MPR with updated economic projections at the next meeting on October 24th. Please see table 1 for the projections from the previous MPR which was released in July. The October meeting will also be followed by a press conference to provide more colour around the Bank’s new projections.” 

“The BoC left the door wide open to another rate hike this year and we expect a 25bp move at the October 24th meeting which will be accompanied by a new Monetary Policy Report (MPR).”

“The BoC highlighted NAFTA as a key risk to businesses and although we maintain the view that the final outcome will be a trilateral agreement between the US, Canada and Mexico, the risk of talks breaking down completely remains very real as Canada is showing no sign of backing down on dairy or Chapter 19.”

“Although we are less bullish than the BoC about the prospects for the Canadian economy going forward, the Bank clearly has a bias to raise rates even if it is in a gradual and cautious manner. As such, if headline data hold up reasonably well and the market is still pricing in a hike before the October 24th meeting, then the Bank will take that opportunity to raise rates 25bp. Looking forward, we see a maximum of three rate hikes as likely up until the end of 2019.”