Markets See 78% Probability of Bank of Canada Rate Hike

The Bank of Canada's rate announcement is scheduled for 9:45 am ET, and the outcome is far from certain.

Following Macklem's remarks at the IMF meetings, market expectations turned sharply hawkish. Currently, the market assigns a 78% probability of a rate increase today and anticipates 31 basis points of hikes by year-end. Over the next year, that expectation climbs to 100 basis points, which would bring the overnight rate to 3.25%.

Speaking in Thailand, Macklem noted that global economies have outperformed expectations, but that this resilience is 'under strain' as the impact of emergency oil releases fades.

"You can only release strategic energy, oil reserves so many times," he said.

The central bank will publish revised economic and inflation projections together with its rate decision.

Significantly, Macklem warned that inflation forecasts will be "quite a bit higher" than in July. Those earlier projections had shown 2.5% inflation for this year.

"The question we're going to be asking ourselves is, is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?" he said.

The Bank of Canada has a history of surprising markets, meaning there is considerable uncertainty around current pricing. USD/CAD has risen 4 pips to 1.4052, and a significant currency move is expected regardless of the decision.

The July projections were as follows:

• 2026: 2.5%
• 2027: 2.0%
• 2028: 2.1%

GDP:

• 2026: 0.7%
• 2027: 1.8%
• 2028: 1.8%

Higher energy prices are expected to lift inflation forecasts, though attention will also focus on core inflation measures.