The Bank of Canada’s new-found optimism in the economy means that there is a risk it could raise interest rates very soon, but we don’t think a rate hike next week to 0.75%, from 0.50%, is a foregone conclusion. Although markets are betting that way, we aren’t fully convinced, mainly because core inflation is still falling and housing market conditions appear to be going from bad to worse. If we are wrong and the Bank does begin to raise rates next week, it would likely prove to be the shortest rate hike cycle in Canadian history and rival the ECB’s short-lived policy error in 2011.
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