One big concern is divergence with the United States Federal Reserve.
Money markets are betting that chairman Jerome Powell will raise the Fed funds rate to between 5.25 per cent and 5.5 per cent, and that would test the Bank of Canada’s resolve, said economists in a Bloomberg survey. “Canada does not need more hikes to cool inflation, although they may be forced to hike if the gap in policy rates starts to cause major currency weakness,” said BofA global economist Ethan Harris.Article content
“If the Bank were to send a dovish message [this] week, it would risk a sharper exchange rate depreciation that would increase the upside risks to imported goods inflation,” wrote Brown.While acknowledging that a growing policy rate differential would not be supportive of the Canadian dollar, National Bank economists disagree that this will force governor Tiff Macklem’s hand.
Source: Loan Digest (loandigest.net)
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