I read in the newspaper things like,
Interest rate swaps, which are based on market expectations about future rate decisions, are pricing in at least one Bank of Canada rate cut later this year, and additional cuts in 2024.
Sometimes there will be a probability associated with the prediction, ie. markets are saying that there is 80% chance of decrease to 4.75% the next time the central bank announces its policy interest rate.
My understanding is that there are a few ways of making these predictions, ie using bankers' acceptances or overnight index swaps. Is there a generally accepted belief that one method has greater prediction accuracy than other methods?
Specifically, I'm interested in understanding what and how the markets are predicting for the next Bank of Canada decision for its policy interest rate.
- Where exactly do these predictions come from?
- Can they be recreated by publicly available information?
- If so, can someone point me in the right direction as to how to do this?