RBC on Bank of Canada: data supports a July rate hike; market pricing too low

The Royal Bank of Canada (RBC) made comments about the upcoming policy decisions of the Bank of Canada (BoC), saying that recent economic data supports a July rate hike.

Key Points:

1. Concerns About Inflation: RBC highlights that the main takeaway from the Bank of Canada’s June statement, progress report, and minutes is a growing concern over whether enough is being done to keep inflation back to the 2% target .

2. Reasons behind the concerns: The concerns of the Bank of Canada are mainly driven by excess demand, persistent core inflation, and a resurgence in the housing market.

3. Chances of a July Rate Hike: RBC stated that economic data released since the June statement supports a July rate hike. They believe a rate hike is likely and necessary to ensure inflation returns to the 2% target.

4. The Market Price is very low: RBC believes that the market has underestimated the possibility of a July rate hike. Market pricing for a July rate hike has dropped from 75% to 60% this week, which RBC sees as too low given current economic data.

Summary:

RBC stressed that recent economic data is consistent with the Bank of Canada’s rate hike in July. The bank emphasized that the Bank of Canada’s main concerns revolve around inflation and whether enough is being done to bring it back to the 2% target. Factors leading to these concerns include excess demand, core inflation, and the housing market. RBC believes a July rate hike is likely and necessary, and argues that the market is currently pricing in the possibility of a rate hike.

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