Bank of Canada governor Tiff Macklem is expected to hold the benchmark overnight rate at 4.5% on Wednesday. Find out more.
That shift is partly the result of hotter-than-expected economic data in the U.S., where stubborn inflation has led short-term money markets to bet on Chairman Jerome Powell raising the Fed funds rate to 5.5 per cent or higher. After the U.S. central bank chief told lawmakers rates will likely have to go higher than previously anticipated, bets on the Fed’s next move tilted toward a half-percentage-point hike instead of a quarter-point move.
“They risk watching the currency tumble,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said by email. “The loonie has already depreciated by enough on a real effective exchange rate basis to be of concern to import price pass-through effects and inflation expectations.”Article content
Macklem’s officials have downplayed fears about rate divergence. “We shouldn’t be too concerned if Canada follows a slightly different path to normalization than our counterparts,” Deputy Governor Paul Beaudry said in speech last month, adding that “what matters most” is getting inflation back to its two per cent target.
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