Markets are getting some mixed messages about whether Canadian interest rates are likely to go up again in July or not.

After a speech today by central bank Governor David Dodge, Bank of Montreal suggested that Dodge “downplayed widespread expectations of another rate increase by noting that his forecasts for the
economy and inflation have changed little since the publication of the April Monetary Policy Report.”

“In recent weeks, strong data on job growth and consumer prices in May had solidified the market’s expectations of a move at the July 11 fixed announcement date. However, Dodge noted that strong data have been balanced by weak figures (likely referring to sizeable declines in manufacturers’ shipments and the trade surplus in April.),” BMO noted.

Yet at the same time, BMO Nesbitt Burns said, “The pressure keeps growing on the Bank of Canada to continue raising interest rates.” The call came on news that Canadian retail sales rose 1.7% in April, which was well above expectations, and the prior month was revised to a 1.7% rise.

“This is yet another turn of the screw, suggesting that Canadian interest rates are poised to go higher. While manufacturing is struggling big-time and real net exports are fading fast, domestic demand is absolutely on wheels and inflation pressures are beginning to drift outside of the narrow confines of Alberta,” BMO Nesbitt said. “Thus, the only debate now seems to be whether the Bank of Canada temporarily pauses over the summer and then continues tightening in the Fall, or throws in the towel and presses ahead in July.”

BMO allows that although Dodge failed to argue the case for a rate hike today, he also didn’t suggest that rates would remain stable in the months ahead. “The upshot is that Governor Dodge appears to be keeping his options open with respect to the July 11 fixed announcement date, awaiting further data to get a more ‘complete picture of the economy’,” it said. “We believe the upcoming data will be sufficiently strong to warrant one final 25-basis points increase in rates.”