Macro Playlist

Markets are now pricing in an 80% probability of a Bank of Canada rate hike on October 28, up from just 30% a week ago. What changed? A speech by Governor Tiff Macklem at the IMF and World Bank Annual Meetings in Bangkok.

Mr. Macklem caught investors by surprise by emphasizing the persistence of inflation and the likely need to raise interest rates to bring it back to target. For a central banker, the message was pretty clear.

Data released on Monday also confirmed that headline inflation rose above 3% in September, and all signs point to energy prices remaining elevated. At the same time, there are some yellow flags in the latest consumer expectations survey, with Canadians expecting inflation to remain high over the longer run. In this environment, bringing rates back toward a more neutral level makes sense.

That said, beyond energy prices, underlying inflation remains well anchored around 2%. Recent data also show that the Canadian economy continues to face headwinds, with trade conditions still challenging. There is therefore no reason to push monetary policy into restrictive territory.

We therefore expect the Bank of Canada to raise its policy rate to 2.50% on October 28, followed by a second hike toward the 2.75% neutral rate in the first quarter of 2027.