My subscription
My Subscription All Publications

Bank stands pat but rate hike coming in March

The Bank of Canada kept policy unchanged today but judges that the conditions to start raising interest rates have now been met, suggesting that it will hike its policy rate at the next meeting in March.
Stephen Brown Senior Canada Economist
Continue reading

More from Canada

Canada Economics Update

Housing Watch (Aug.)

Home sales fell further below the pre-pandemic norm in July and pre-construction sales seem to have fallen through the floor, but there is no evidence yet that this is weighing on construction.

16 August 2022

Canada Data Response

Consumer Prices (Jul.)

The fall in headline inflation to 7.6% in July left it lower than the Bank of Canada’s recent forecast but, amid continued broad upward pressure on core prices, we still judge that the Bank is more likely to opt for a 75 bp interest rate hike in September rather than drop down to a 50 bp move as many now expect.

16 August 2022

Canada Data Response

Manufacturing Sales (Jun.)

Manufacturing sales volumes only inched up in June and, with the manufacturing surveys on both sides of the border weakening in recent months, the outlook is growing even more challenging.

15 August 2022

More from Stephen Brown

Canada Chart Book

Wage growth could prompt faster policy tightening

The Bank of Canada’s fourth-quarter Business Outlook Survey showed firms’ wage expectations at a record high, which suggests that wage growth could accelerate to far above the pre-pandemic norm this year. With little sign yet of a rebound in productivity growth, such a strong pace of wage growth would present a clear upside risk to our price inflation forecasts. Until now, most economists have assumed that the Bank will take a relatively slow approach to policy tightening, with the consensus forecast consistent with one interest rate hike per quarter, based on the logic that elevated household debt and stretched house prices mean the economy is more sensitive to interest rate hikes than in previous cycles. We doubt, however, that the Bank will be overly concerned about those risks during the early stages of its tightening cycle. If wage growth accelerates in the coming months, the Bank may therefore choose to raise interest rates more quickly to begin with, before taking a slower approach once the policy rate has reached perhaps 1.0% or so. Either way, given the risks of higher borrowing costs to the housing market, we remain doubtful that the Bank will hike by as much in the next couple of years as markets are now pricing in.

25 January 2022

Canada Economic Outlook

Higher interest rates will leave economy vulnerable

Despite a weak start to the year, we expect GDP to rise by 3.6% in 2022 due to broad-based gains in consumption, business investment and net trade. Against that backdrop, the Bank of Canada is set to raise interest rates four times in 2022. As higher borrowing costs will take a heavy toll on the housing market and residential investment, however, we expect quarterly GDP growth to slow to below its potential rate in 2023 and expect the Bank to pause its tightening cycle earlier than most anticipate.

24 January 2022

Canada Economics Weekly

Will they, won’t they?

Whether the Bank of Canada raises interest rates next week or not, the more important question now is how high will rates eventually rise? Our view is that current market pricing is too aggressive.

21 January 2022
↑ Back to top