Bank of Canada expected to hold interest rates steady for the third time
The central bank, economists and businesses are increasingly hoping that the worst-case scenario from the impact of President Donald Trump's tariffs is over.
"Core inflation is still a little bit hot for the Bank of Canada's comfort," said Doug Porter, chief economist at BMO Capital Markets.
"And on top of that, most of the economic data we have seen in recent weeks and even months has been a little less bad than expected," he added, saying that the chances of a continued pause in rates are much more likely.
The spillover effects from high tariffs on steel, aluminum and automobiles have largely been confined within those markets while other sectors posted job growth in June.
The economy added 83,100 new jobs in June, the first net increase since January. The unemployment rate fell to 6.9% in June with surprise job growth in sectors including wholesale and retail trade, as well as manufacturing, healthcare and social assistance.
At the same time, the core measures of inflation that the BoC closely tracks have been persistently at or above 3%, the upper end of the bank's 1%-3% inflation target range.
"The Bank of Canada, being a single mandate central bank, cares about inflation the most," said David Doyle, head of economics at Macquarie.
Money markets are pricing in a 7%-8% probability of a rate cut this week.
A Reuters poll of 28 economists showed that the lack of clarity around tariffs, combined with recent data on inflation and jobs, will keep the BoC on the sidelines this week. The poll was conducted from July 21 to July 25.
Nearly two-thirds of the economists surveyed, 18 of 28, forecast that the BoC would cut its policy rate by 25 basis points in September to 2.50%. More than 60% of the economists predicted a second 25-bps cut before yearend.
The BoC was the first central bank among the G7 countries to start cutting rates in June last year and has been the most aggressive since then in its easing cycle. It has reduced rates by 225 basis points between June last year and March.
BoC Governor Tiff Macklem will announce the governing council's decision at 9:45 a.m. ET (1345 GMT) on Wednesday. The bank will also release its quarterly monetary policy report, which usually contains its predictions on the economy and inflation.
However, the BoC changed tack in April for the first time since the pandemic and offered two different scenarios for the economy as uncertainty on the magnitude and the timing of tariffs have complicated forecasting, the bank said.
"Things are still tremendously uncertain, but it feels like the uncertainty has come down a little bit since then. I would be surprised if they didn't present formal forecasts," Doyle from Macquarie said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Telegraph
28 minutes ago
- Telegraph
Food price rises outstrip UK inflation
Households are facing more expensive weekly shops after food prices outstripped inflation because of higher costs for British staples such as beef and teabags. According to the British Retail Consortium (BRC), food price inflation rose to 4pc in July – its highest level since February last year. The latest figures from the Office for National Statistics (ONS) show the UK's inflation rate rose to 3.6pc in the year to June, up from 3.4pc in May. The statistics body said that price rises in food and fuel had pushed inflation higher. The UK's inflation rate still stands some way off the Bank of England's 2pc target. Helen Dickinson, the chief executive of the BRC, said staples such as 'meat and tea' were hit the hardest as wholesale prices suffered from tighter global supplies. The recent acceleration in food prices also comes as retailers pass on increased labour costs after measures from the Chancellor's October Budget took effect in April. Retailers had previously warned that increases in employment costs would lead to higher prices on shelves. Ms Dickson said that the Government should 'think carefully about the next Budget', adding that if the Chancellor introduced tax rises this year, it would lead to additional costs for households. 'Further tax rises will ultimately hurt households, locking in inflation and forcing people to pay higher prices to put food on the table,' she said. 'Shop around' It marked the sixth consecutive month of rising food inflation. Household expectations of inflation are particularly alert to food prices as the cost of a weekly supermarket shop continues to climb. Mike Watkins, from data firm NielsenIQ, said: 'Consumers' household budgets are coming under pressure with the food retailers now seeing price increases above the consumer prices index. 'However, price competition helped by promotional activity will still mean that shoppers can save money by shopping around.' Mr Watkins added that as inflation remains elevated, 'high street retailers will also be concerned about customer retention over the summer holiday season if they are to maintain sales momentum'. Overall shop price inflation increased to 0.7pc in July, up from 0.4pc in June, according to figures compiled by the BRC and NielsenIQ. Summer sales for clothing and furniture brought non-food inflation to -1pc in July, against a decline of -1.2pc in June. Retailers will also face fresh pressure from a packaging tax coming into force later this year. There are concerns the changes – which will see food and drink companies charged a levy based on how many tonnes of packaging such as glass, aluminium and plastic they use – will lead to higher costs for companies and increased prices for consumers without driving a rise in recycling rates.
Reuters
an hour ago
- Reuters
Asia shares ease, euro flatlines as tariff costs counted
SYDNEY, July 29 (Reuters) - Asia shares slipped on Tuesday while the euro nursed its losses as investors pondered the downside of the U.S.-EU trade deal and the reality that punishing tariffs were here to stay, with unwelcome implications for growth and inflation. The initial relief over Europe's 15% levy quickly soured when set against the 1% to 2% that stood before President Donald Trump took office. Leaders in France and Germany lamented the outcome as a drag on growth, pulling down stocks and bond yields across the continent while slugging the single currency. Trump also flagged a "world tariff" rate of 15% to 20% on all trading partners that were not negotiating a deal, among the highest rates since the Great Depression of the 1930s. "While the worst case scenario was averted, the implied EU tariff increase from 1% in January is a significant tax increase on EU exports," wrote economists from JPMorgan in a note. "This is a very big shock that unwinds a century of U.S. leadership in global free trade," they warned. "While we no longer see a U.S. recession as our baseline from this shock, the risk is still elevated at 40%." A further risk to world growth came from a sudden spike in oil prices after Trump threatened a new deadline of 10 or 12 days for Russia to make progress toward ending the war in Ukraine or face tougher sanctions on oil exports. The air of caution saw MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab slip 0.8%. Japan's Nikkei lost 0.9% (.N225), opens new tab, while Chinese blue chips (.CSI300), opens new tab were flat. European shares steadied after Monday's sell-off. EUROSTOXX 50 futures , FTSE futures and DAX futures all edged up around 0.2%. The euro was flat at $1.1587 , after falling 1.3% overnight in the largest drop since mid-May. It now has chart support at $1.1556. The dollar index was up at 98.675 , after the rush out of short dollar positions lifted it 1% overnight, while it eased a one-week high on the yen to stand at 148.27 . Wall Street held firm on hopes for upbeat results from mega caps this week that include Apple (AAPL.O), opens new tab, Meta Platforms (META.O), opens new tab, Microsoft (MSFT.O), opens new tab and Amazon (AMZN.O), opens new tab. S&P 500 futures nudged up 0.1%, while Nasdaq futures added 0.2%. Yields on 10-year Treasuries held at 4.408% having crept higher on Monday as markets braced for another steady decision on interest rates from the Federal Reserve. Futures imply a 97% chance the Fed will keep rates at 4.25%-4.5% at its meeting on Wednesday and reiterate concerns that tariffs will push inflation higher in the short term. Analysts also assume one, or maybe two, Fed officials will dissent in favour of a cut and supporting wagers for a move in September. The odds could change depending on a slew of U.S. data this week including gross domestic product for the second quarter where growth is seen rebounding to an annualised 2.4%, after a 0.5% contraction in the first quarter. Figures on job openings are due later on Tuesday that will help refine forecasts for the crucial payrolls report on Friday. Canada's central bank also meets on Wednesday and again is widely expected to hold rates at 2.75% as it waits to see how trade talks with the U.S. wash out. In commodity markets, prices for copper and iron ore were under pressure while gold idled at $3,315 an ounce . Brent was off a fraction at $69.90 a barrel, having climbed 2.3% on Monday, while U.S. crude held at $66.60.
BBC News
an hour ago
- BBC News
Institute of Directors Guernsey reacts to inflation slowing
The Institute of Directors in Guernsey has reacted after inflation slowed to 3.9% between March and rate, measured by the Retail Price Index (RPI), is 1.4% lower than the same time last year and 0.3% lower than March 2025. Richard Hemans, the Institute of Directors Guernsey's lead on economics, said the island "must accelerate housing development, expand workforce capacity, and improve productivity in key service sectors, while fiscal discipline, targeted immigration, and greater competition in key markets are also essential to ease inflationary pressure".He said the inflation rate was "lower than the UK" which was "a welcome development but not yet a cause for complacency". The bulletin showed Guernsey's housing costs increased by 6.9% and contributed 1.3 points to overall inflation. Household services and food were the other major drivers of Guernsey inflation, rising 5.7% and 4.4% inflation, excluding food and energy, was 3.2%, down from 4.2% in institute represents business leaders and directors in Hemans said: "The reduction in core inflation underlines the impact of volatile food and energy prices on local inflation, with recent electricity price increases contributing 0.3% to the latest figures. "Core inflation is therefore coming down faster than the headline figure suggests." 'Avoiding wage-price spirals' He added that "services inflation accounts for 2.9% points of Guernsey's 3.9% RPI, compared with 1.0% from goods. "The biggest service-sector pressures stem from rents, fees and subscriptions, mortgage interest, electricity, and domestic and personal services — areas where market concentration and labour shortages are driving persistent cost increases."He said it highlighted the structural challenges faced by Guernsey's housing and labour said the "States' forecast of 3.2% inflation by year-end looks achievable, but further progress will depend on easing housing costs and avoiding wage-price spirals."Persistent inflation at current levels risk eroding competitiveness and living standards," he added.
