Heading into the week, financial markets expected a 50 bps rate hike from the Bank of Canada and for the policy interest rate to be lifted to 1.50%. BoC officials reiterated that inflation pressures have yet to subside and that inflation expectations continue to rise. As these inflation pressures persist, BoC officials said that they may have to get "more forceful" in tightening monetary policy.
If they were to run more hawkish, policymakers would likely choose to raise interest rates in 75 bps clips until inflation is on a more solid downward trajectory. In the coming weeks, we will examine our forecast for Canada's economy and in turn our view on Bank of Canada policy rates. We have been relatively optimistic on Canada's economy this year, especially with high oil prices, and believe the Canadian dollar could also be an outperformer in the currency space. If we think Canada's economy can withstand 75 bps rate hikes. - Wells Fargo Economics
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