- The Bank of Canada is expected to raise borrowing costs.
- Economists forecast the central bank will increase its benchmark interest rate by 25 basis points to 1.75%.
- Watch the Canadian dollar trade in real time here.
The Bank of Canada is widely expected to raise short-term borrowing costs Wednesday and leave the door open to further tightening as economic growth remains relatively strong and as uncertainty around US trade policy eases.
Economists polled by Reuters forecast the central bank will increase its benchmark interest rate by 25 basis points to 1.75%, marking the fifth hike since the summer of 2017.
Canada’s economy has been growing steadily, with gross domestic product accelerating in the second quarter at the fastest pace in a year, and is expected to continue to pick up. Ottawa reached a trade deal with the US and Mexico last month, all but putting an end to NAFTA tensions that had raised outlook concerns.
“The risk of a significant increase in trade tensions with the US, such as the US withdrawing from NAFTA or imposing auto tariffs on Canada, has been all-but eliminated,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a research note.
The central bank had cited trade uncertainty at its last policy announcement in September, saying it was “closely monitoring” the course of negotiations and their impact on the inflation outlook.
With BOC officials emphasising a gradual and data-dependent approach to monetary policy in recent speeches, economists are eyeing another increase in January and three more throughout the rest of 2019.
But analysts at the Bank of America Merrill Lynch said they expect the Bank of Canada could move more quickly than expected as headline inflation remains above target and as the Federal Reserve continues tightening.
“Stronger activity will put more pressure on prices, leading the BoC to pick up the pace of hikes,” the analysts said.
The Canadian dollar was mostly flat ahead of the announcement, with most economists predicting the increase had already been priced in.
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