TD Bank says that another 25 basis point rate hike from the Bank of Canada next Tuesday is a “slam dunk”, calling it “as close to a done deal as it gets”. Markets can expect the tightening to continue, it says.

In the bank’s Monetary Policy Monitor released today, Marc Lévesque chief strategist, North America?foreign exchange and fixed income research, TD Securities, notes that this would be the third consecutive hike since the Bank of Canada moved off the sidelines in September, and the markets are fully anticipating the move. “There is not an analyst to be found expecting the Bank to do otherwise,” he notes.

There is certainly nothing on the economic front to justify the Bank taking a pause, he argues. He adds that Bank of Canada officials have done nothing to dissuade financial markets from pricing in several more rate hikes.

“Bank officials have been going out of their way to counter some of the increasingly popular objections to further rate hikes,” he observes. “As the argument goes, the Bank cannot keep tightening, because although the economy is doing well in the aggregate, that performance masks important differences in growth between sectors (oil and gas vs. manufacturing) and between regions (Alberta vs. central Canada). In a nutshell, the Bank cannot raise rates when manufacturing, which is heavily concentrated in central Canada, is still adjusting to the stronger currency.”

However, Lévesque says that Bank governor, David Dodge, has been taking jabs at the argument in recent speeches. And, in his most recent talk, senior deputy governor Paul Jenkins went straight for the knockout punch.

In Jenkins’ words, “Our latest Business Outlook Survey suggests that, overall, companies continue to be positive about the economic outlook and that investment and hiring intentions remain firm across all regions and most sectors”. And, “Monetary policy, which is the responsibility of the Bank of Canada, is national in nature and scope. We need to look at what is happening across Canada, add it all up, and gear monetary policy to the needs of the entire country. The best contribution monetary policy can make to the adjustment process is by aiming to keep inflation at 2% over the medium term and the national economy operating close to its production capacity.”

“The gist of the argument is that monetary policy is not able, in any event, to deal with these discrepancies. Arguably, that is the domain of fiscal policy. But, more importantly, the simple fact that Mr. Jenkins went out of his way to quash the arguments says something about the Bank’s implicit intentions over the next few [rate announcements],” Lévesque concludes.