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Macquarie Still Sees Bank of Canada Hiking Rate in October as Central Bank Embraces Optimism

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Macquarie Group said it continues to expect a 25 basis-point rate hike later this year after the Bank of Canada left its overnight rate unchanged on Wednesday, in line with expectations, and struck a more confident tone on the economic outlook.

A 25-basis-point hike, lifting the policy rate to 2.50%, is still expected later this year, with October the most likely timing, although December remains a viable alternative, David Doyle, head of economics at Macquarie Group, said in a Wednesday note.

While Canada's central bank removed its previous tightening bias and adopted a more neutral policy stance, reflecting the recent moderation in oil prices, both the policy statement and Governor Tiff Macklem's remarks on Wednesday conveyed greater confidence in the economic outlook, Doyle added.

The more constructive growth outlook supports the view that economic activity and the labor market could outperform the BoC's projections, gradually absorbing excess economic slack and contributing to firmer underlying inflation pressures in the months ahead, according to Macquarie.

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