The Bank of Canada Is Likely Ready to Start Hiking Interest Rates Again

Bank of Canada

(Bloomberg) — The Bank of Canada probably isn’t done raising interest rates.

Whether they move now or in July, policymakers led by Governor Tiff Macklem are expected to resume their tightening campaign. About one in five economists surveyed by Bloomberg say the central bank will raise its benchmark overnight rate 25 basis points to 4.75% on Wednesday, when it delivers a statement-only decision at 10 a.m. in Ottawa.

Others predict it will wait until next month. In the swaps market, traders have now fully priced a higher policy rate by July 12.

Officials have been warning they may still need to crank borrowing costs higher since declaring a conditional pause in January. Now it’s clearly warranted, according to some economists. While heavily indebted Canadians have been pinched by the bank’s battle against inflation — interest rates shot up 425 basis points in less than a year — the overall economy remains surprisingly resilient.

That wasn’t supposed to happen. At the end of last year, most economists said the country would likely be in the middle of a technical recession by now.

Policymakers could keep watching the data and wait for monetary policy to work its way through the economy. But there’s more than enough evidence that rates just aren’t restrictive enough to bring inflation back to the 2% target within a reasonable time frame.

“The right move here is for them to hike rates,” Andrew Kelvin, chief Canada strategist at Toronto-Dominion Bank’s securities unit, said by email. “The longer they wait, the greater the risk that they fall behind the curve again.”


Sandstone Group