📝 See The BoC Delivering One More Rate Hike In July: ING FX Strategy

Last month, the BoC suggested that it would continue to evaluate inflation, wage and demand dynamics to determine its next steps. Since that meeting, the data has been mixed. Inflation slowed to 3.4% year-on-year from 4.4%, which was in line with expectations, but the core rate undershot, coming in at 3.9% versus 4.3% previously. GDP was flat in April, but the flash estimate for May was better at +0.4% month-on-month. Then, the labour market data showed the economy adding 60,000 jobs in June, three times the 20,000 consensus expectation, but unemployment rose to 5.4% having been stable at 5% in the first four months of the year. Wage growth slowed to 3.9% from 5.1%, which is a very encouraging outcome.

Given this backdrop, it isn’t surprising to see a split view on whether the BoC will hike again on 12 July. Eight out of 21 banks surveyed by Bloomberg expect interest rates to remain at 4.75%, with 13 expecting a 25bp hike to 5%. We are among the latter grouping. To restart hiking after a five-month break suggests the BoC feels it hasn’t done enough to be certain that inflation will return sustainably to the 2% target. To us, this means the odds certainly favour at least one additional move and we see little reason for them to wait – hence our call for a 25bp hike on 12 July.

- ING FX Strategy