The Bank of Canada will likely deliver a repeat of last week’s jumbo rate hike at its next policy decision, according to market pricing.  

Trading in overnight swaps show investors are now fully pricing in a second 50-basis-point increase at the central bank’s June 1 meeting. Odds for the second outsized rate hike next month rose to 100 per cent on Wednesday for the first time, after annual inflation blew past expectations.

Markets are now in line with a majority of Canada’s lenders. Canadian Imperial Bank of Commerce and Laurentian Bank of Canada switched their calls to a 50 basis point hike after the inflation report. Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal were already predicting an outsized rate increase in June.

“We think the Bank of Canada will be concerned that inflation continues to surprise to the upside of their forecasts,” Andrew Grantham, an economist with CIBC, said by email. “They’ll want to make sure that these strong inflation readings don’t start to impact longer-run inflation expectations.”

Statistics Canada reported Wednesday that inflation rose to 6.7 per cent in March, the highest since January 1991. Economists were anticipating inflation would hit 6.1 per cent.

Bank of Canada Governor Tiff Macklem increased the benchmark overnight interest rate by 50 basis points to 1 per cent last week, and reiterated he would “act forcefully” to wrestle inflation back to the central bank’s 2 per cent target.

Macklem and his officials also raised their estimate for the neutral rate of interest -- a level that neither speeds up nor slows down the economy -- to between 2 per cent and 3 per cent. Any rate below that range would be considered stimulative, while borrowing costs above 3 per cent would be seen as restrictive. Markets now see the Bank of Canada hiking its overnight interest rate to about 3.25 per cent next year.

For some analysts, the inflation numbers could justify even larger increases.

“The fact that inflation is running amok should drive a minimum 50bps hike that we forecast at the next meeting in June,” Derek Holt, an economist with Bank of Nova Scotia, said in a report to investors. “There is even a solid case for the BOC to hike by 75–100bps in one shot.”