Macklem’s comment led to forecasts of a 0.75% rate increase in June

Today, traders predict a 0.75% rate increase by the central bank, following the Governor Tiff Macklem’s words that sharp rate hikes have the potential to restrain inflation that’s at a 30-year record high level.

Last week, Macklem made the first half percent increase among Group of Seven countries. On Thursday, when asked about the possibility of even a larger increase at the next meeting, he said he didn’t rule out anything.

As a result, traders changed their forecasts to about a two-thirds chance of a 0.75% move at the BoC’s rate meeting on June 1. Such a hike will lead Canada’s overnight interest rate to 1.75% – exactly where it was before the pandemic.

Moreover, Macklem’s comment made Desjardins Securities Inc. change its predictions to also a 0.75% rate hike on June 1. In March, annual consumer price gains reached 6.7%, exceeding all forecasts.

During his speech in Washington, where he was at the meetings of the International Monetary Fund and World Bank, Macklem noted that monetary policy needs to be normalized at a reasonable pace in order to keep inflation close to the target of 2%.

“We’re ready to act as forcefully as it will be necessary, and I will just let those words speak for themselves,” – he said.

Canada hasn’t seen a 0.75% rate increase since the late 1990s. However, the central banks around the world, including the Federal Reserve, are saying that faster and bigger rate hikes are necessary to reduce the price pressures.

Prior to Macklem’s comments, markets saw a one-third chance of a 0.75% rate move in June.