Higher interest rates a big gamble

The Bank of Canada’s decision to raise interest rates to 1.25% yesterday has reinforced expectations of further rate hikes later this year.  According to futures markets, there is a 22% chance of a rate hike to 1.50% as soon as March. Our view is that the Bank will delay the next rate hike until April. The bigger question is still where will rates be in 12 months’ time? In contrast to the consensus, we believe that the unwinding housing-related imbalances will upend the economy, prompting the Bank of Canada to reverse course later this year.