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Weaker than expected economic data not seen delaying Bank of Canada rate hike

Weaker than expected economic data not seen delaying Bank of Canada rate hike

OTTAWA : Although Canadian inflation and retail sales data came in weaker than expected on Friday, market operators predicted the Bank of Canada still would raise interest rates again next week to keep a booming economy in check.

Statistics Canada said the annual inflation rate in September dipped to 2.2 per cent from 2.8 per cent as price pressures from gas and air travel eased. Analysts in a Reuters poll had forecast an annual rate of 2.7 per cent.

September marked the eighth consecutive month that the overall inflation rate has exceeded the Bank of Canada’s 2.0 per cent target.

The central bank, which predicts inflation should move back down toward 2 per cent by early 2019, will announce its next interest rate decision on Oct. 24 and markets are expecting a hike. The bank has lifted rates four times since July 2017.

“We always knew we were going to see headline CPI inflation trend back down towards 2 per cent … the hike next week is going to happen,” said Andrew Kelvin, senior rates strategist at TD Securities.

Market expectations of an interest rate hike in October, as reflected in the overnight index swaps market, dipped slightly to 96.95 per cent from 98.53 per cent before the release of the inflation data.