The Bank of Canada (BoC) became the first major global central bank to pause its rate-hike campaign in January, but the economy's surprisingly strong performance since then will test Governor Tiff Macklem's resolve to stay on the sidelines this week.
"Following the rapid turnaround in the housing market and upside surprise to CPI inflation in April, that resilience boosts the case for another interest rate hike, which we now judge to be more likely than not," said Stephen Brown, deputy chief North America economist at Capital Economics.The Bank of Canada will announce its interest rate decision at 10 a.m. ET on Wednesday.
Since the United States accounts for about three-quarters of Canada's exports, indications of slowing growth there could play into Macklem's decision. But some analysts say Macklem could shrug off market expectations and protectively push rates higher. Mendes said there could be more than one rate hike in the cards, and Canadians should "brace themselves for a further tightening in financial conditions this summer".
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