The Bank of Canada appears increasingly confident in the economic outlook, but we think that its forecasts for GDP growth will prove to be too optimistic. Following this week’s increase in the policy rate to 1.50%, from 1.25%, the Bank believes that “higher interest rates will be warranted to keep inflation near target”. This is based on its forecasts for GDP growth of 2% this year and 2.2% in 2019, which are well above our own forecasts of 1.8% this year and just 1.3% in 2019. The detail provided in the new Monetary Policy Report, released this week, confirms that this difference is due to our opposing views on the housing market.
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