Macklem October 25

The Bank of Canada left rates unchanged today at 5.00% but maintained a hawkish bias. CIBC thinks current rates will be enough to restrain inflation as mortgage resets work their way through the economy.

"We'll stick to our view that the Bank of Canada has already delivered enough rate hikes to keep growth under wraps, and bring inflation down on a somewhat faster trajectory than its latest forecasts. That good news on the inflation front, and not so good news for growth, should be sufficient to bring a policy ease towards mid-2024, with overnight rates getting to 3.5% by the end of that year. While that seems a long way from where we are now, its still twice the peak interest rate of the prior cycle, and above the level that the Bank of Canada judges as neutral for economic growth."

The market is currently pricing in just 16 bps in easing next year so cuts amounting to 150 bps would be a material drag on the Canadian dollar.