Bank of Canada defends rate hike as Brazil seen holding rates

what happened

Bank of Canada Governor Tiff Macklem, answering questions from lawmakers, said the economy is showing "impressive resilience" and that policy no longer needs to be as accommodative. He explained last week's quarter-point increase to 2.5% by pointing to a buildup of cost pressures and an expectation that more firms will pass those costs on through prices. The central bank estimates the neutral rate at between 2.25% and 3.25%.

In Brazil, Natixis analyst Benito Berber expects the central bank to keep its benchmark rate at 13.75% at its meeting tomorrow, ending an easing cycle. Investors are worried about rising government spending after Lula da Silva's reelection, and the real weakens 1% against the dollar.

In the US, job openings for September rose to a four-month high, according to BMO analysts. They said the data supports expectations for a quarter-point Fed rate increase at the December FOMC meeting, and the 10-year Treasury yield has hovered around 5%. Source: Market Talk.

why it matters

For markets, this suggests borrowing costs may stay high for longer than expected. Hawkish central bank signals weigh on bonds and push investors to reassess yield and currency outlooks, especially in economies with high domestic risks.

market impact

US and Canadian government bonds: tighter rate expectations pressure prices; Brazilian real weakens

• ▼US Treasuries pressure down — strong job openings reinforce expectations of a Fed rate hike
• ▼Brazilian real pressure down — rising spending worries and unclear fiscal signals weigh on the currency

instruments