Another surprise BoC hike in September? We don’t think so - RBC

"An upbeat tone from the Bank of Canada at their July meeting—when they raised rates for the fourth time in a year—improved our confidence that we’d see another hike before 2019," Royal Bank of Canada Economic Research team notes.

Key quotes

"Recent data have also supported that call. When the central bank updated their projections in July their forecast for Q2 GDP to rise 2.8% looked ambitious. But as noted above, May’s GDP reported now has us monitoring an even stronger increase. June’s CPI report was also firmer than expected with headline inflation running at the fastest pace in more than six years. Upside surprises on growth and inflation have raised the prospect of the BoC hiking rates again as soon as September. That would follow the pattern seen last year when a well-telegraphed rate increase in July was followed by a more surprising move in September."

"Will history repeat itself? We don’t think so. Back-to-back moves would go against the bank’s guidance that tightening will be gradual. Last year was also a somewhat different case as the 50 basis points of rate hikes delivered over the summer could be seen as simply reversing cuts made during the oil price downturn."

"So even as recent data point to less need for stimulative monetary policy, we think the BoC will be patient this time around and wait until October to raise the overnight rate. Interestingly—and in contrast to the BoC’s silence last summer—two panel appearances by Governor Poloz and Senior Deputy Governor Wilkins in late-August offer an opportunity to talk up a September move if Governing Council is so inclined."

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