BoC preview: the central bank is unlikely to validate the rate hike bets just yet

key points:

• BOC is expected to keep interest rates steady at 2.25%
• The central bank will likely eliminate warnings for further easing, effectively marking the end of the easing cycle
• The market has strongly predicted a rate hike in 2026, but the BoC is unlikely to confirm it yet
• Given the caveat in strong Canadian data, Governor Macklem should still remain cautious but keep options on the table

The Bank of Canada (BoC) is widely expected to leave interest rates unchanged at 2.25%. This will keep interest rates at the lower end of the central bank’s estimated neutral range of 2.25-3.25%. We will not get economic estimates on this decision.

The BoC will likely cancel any signals of further easing to confirm the end of the easing cycle, but will not yet validate the rate hike bets. Governor Macklem is expected to appear cautious about recent economic data but still more hawkish than his previous press conferences.

statement

In the final decision, the central bank cut interest rates by 2.25% and hinted at a move to the sidelines, with some caveats in the statement. We should see some notable changes.

The central bank should acknowledge the recent improvement in GDP, but be cautious in highlighting the weak details. However, they should acknowledge the strength in the labor market despite the decline in full-time jobs. The outlook around inflation will likely remain unchanged as the Bank sees inflation under control for now.

,Governing Council sees current policy rate at about right levelA slight shift to a stronger neutral stance can be seen by eliminating “about”.

press conference

Governor Macklem is expected to strike a cautious tone, delivering a strong neutral message and indicating readiness to respond if there is a change in approach.

He could highlight warnings from recent GDP and labor market reports. In fact, the GDP strength was mostly due to a large decline in imports and the advance GDP reading for October showed a contraction of -0.3%.

On the labor market data side, there is no doubt that it is on a hot streak and the latest release showed the biggest drop in the unemployment rate in 20 years (except Covid). The only downside was the reduction in full-time jobs.