Pretty much unanimous that a rate hike is expected.

Posts so far ahead of the announcement:

That enough? No? OK then ….

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CIBC:

In all likelihood, Governor Poloz will opt to nudge interest rates a quarter point higher, given that the second quarter looks to see a rebound in growth to over 2% after three successive disappointments.

While markets are already well braced for that, there's a lot of uncertainty on the policy path thereafter.

Could the text of the rate announcement, the new Monetary Policy Report, or the Governor's press conference, help you in that regard? Not really.

  • For one, the core of the statement has to sound hawkish no matter what comes next. After all, it's not just speaking to trading floor geeks. It has to justify to Canadians why the pain of higher interest rates is a necessary evil to keep inflation at bay, and why the economy can still thrive with higher yields. Except at the very end of a rate hike cycle, it's almost impossible to have a "dovish hike" in terms of the text released to explain it.

Since some hope to see that dovish message, we're likely to see markets price increased odds of follow-up moves in the year ahead as traders read that text on Wednesday. But what bond investors really want to know is if we're due for another hike this summer or this year, or if, as we expect, we'll be waiting until 2019 for the next uptick.

Relying on the BoC statement to fine tune such forecasts is a big mistake. Indeed, the Bank of Canada Governor just devoted a whole speech on the topic of why he can't provide you with guidance on the timing of future rate decisions. Simply put, he doesn't know himself.

  • The Bank's internal forecast for policy rates is predicated on the view that the rate path will be consistent with hitting its forecasts for growth and inflation, which it will provide in the MPR next week.
  • But these days, such projections are fraught with multiple layers of uncertainty. That's not only coming from Trump Administration trade policy, but from dealing with the first ever climb from near-zero interest rates, what looks to be a new and lower normal for neutral rates, and a household sector carrying record debt levels. The only way to find the optimal interest rate path that will keep Canada at full employment and 2% inflation is to avoid prejudgments and wait for upcoming news to provide the answers.

If the Bank of Canada does raise rates in July, there will be critics in some quarters saying that such a move is imprudent, given the threat of major tariffs on automotive products, and their sizeable costs in growth and employment. That criticism ignores one simple fact. Rate hikes aren't irreversible. If we get hammered on exports, having spent a few months with a higher interest rate won't make much of a difference to the outcome.