Invesco Canada blog

Insights, commentary and investing expertise

Interest rate outlook: BoC moves firmly into hawkish camp

The Bank of Canada (BoC) has moved firmly into the hawkish camp, with a rate hike to 1% this month, leaving the market expecting one more rate hike this year. The benchmark rate was raised to 0.75% in July.1 Recent economic data continues to surprise to the upside.

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Surprise hike from hawkish BoC

In a move that surprised the market, the Bank of Canada (BoC) hiked the target overnight rate to 1% at today’s monetary policy meeting. This is the second hike in a row for the BoC. The market was not expecting the next rate hike until the Bank’s October meeting.

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Interest-rate outlook: Long-term U.S. rates now more dependent on global monetary policy

After hitting lows for the year in June, 10-year government bond yields rose to a two-year high of 1.89% in July,1 as the Bank of Canada (BoC) unsurprisingly increased its benchmark rate from 0.50% to 0.75%.2 The accompanying statement was upbeat as well, brushing off softer inflation numbers as temporary. The BoC’s optimism will probably keep the possibility of another rate hike alive at each of its upcoming meetings. We expect interest rates in Canada to rise from current levels, but we are looking for signs that rates may have topped out in the short term.

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Up, up and away: BoC hikes rate

Following recent upbeat comments, the Bank of Canada (BoC) announced today that it would hike the overnight target rate to 0.75% from 0.50%. This is the first rate hike since 2010, as the BoC has become confident that the current “above potential growth” will continue, leading it to take back one of two emergency rate cuts enacted in 2015.

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Interest-rate outlook: Expect rising rates in Canada

In June, Canadian 10-year government bond yields bounced off their lowest levels of the year, to 1.63%, as first quarter growth came in above expectations and central banks express confidence that monetary policy has accomplished it’s goal.1 The Bank of Canada (BoC), in particular, is less worried about uncertain U.S. trade policy and another substantial drop in oil prices, and becoming worried that excess capacity is beginning to dwindle. Their optimism may prove to be premature as inflation remains very low, so we are watching its stance closely. We expect interest rates in Canada to rise from current levels.

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Full steam ahead: Fed hawkish, hikes rates

The U.S. Federal Open Market Committee (Fed) hiked its key interest rate by 0.25% today, to a target range of 1% – 1.25%. While the hike was fully expected by the market, recent inflation prints, such today’s May CPI falling by -0.1%, had left an expectation this would be a dovish hike. As it turns out, the Fed announcement was hawkish as it formally announced the details of their balance sheet normalization.

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