Bank of Canada: Rate path risks tilt earlier – RBC

Nathan Janzen at Royal Bank of Canada (RBC) notes that markets are focused on whether the Bank of Canada (BoC) will raise rates in October after the Federal Reserve’s (Fed) move. He highlights Governor Macklem’s upcoming speech and stresses policymakers’ focus on inflation passthrough from higher energy prices. RBC’s base case is for gradual hikes starting in early 2027, though risks are shifting toward earlier tightening.

Policy focus on inflation passthrough

"Bank of Canada Governor Tiff Macklem is scheduled to speak on “economic developments” on Monday in Halifax, which could provide some additional guidance ahead of its interest rate decision on Oct. 28."

"On the central bank calendar, attention has turned to whether the BoC will hike interest rates later in October after the Federal Reserve raised rates for the first time since 2023 this week."

"At its last meeting, the BoC flagged concerns about broader inflation implications from higher energy prices."

"Meeting minutes, however, clarified that policymakers are more focused on passthrough to general inflation than on elevated oil prices themselves, which the central bank cannot influence."

"Risks to this forecast are tilting toward earlier hikes."