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A growing number of economists are leaning toward a rate hike by the Bank of Canada, potentially in June or July, with mounting evidence suggesting the housing market is gaining momentum while inflation remains persistent.

Scotiabank has emerged as the first among Canada’s Big Six banks to predict a 25-basis-point rise in the central bank’s benchmark rate to 4.75% at its June meeting, according to Bloomberg.

This shift in sentiment follows the release of two significant economic indicators that point towards the housing market’s resurgence and an unanticipated uptick in inflation, driven by higher shelter costs.

Although policymakers had paused their tightening campaign in the previous two meetings, economists are now weighing the resilience of the housing sector and stubborn consumer prices against other data that suggest financial stress among households and a slowdown in consumer spending.

Stephen Brown, an economist at Capital Economics, told Bloomberg that one or two rate hikes needed to occur as a "psychological effect" to shock individuals and businesses, demonstrating the Bank’s commitment to bringing inflation back to its targeted 2%.

Brown acknowledged that household vulnerabilities, including high consumer debt, are likely to limit the extent of tightening. Nevertheless, he suggested that the Bank might opt for an "insurance hike" as an additional measure.

Citigroup’s Veronica Clark believes June will see a further hike by the Bank, while Capital Economics anticipates an increase in July.

Still, a majority of economists surveyed by Bloomberg still expect rates to remain on hold for the rest of the year.

Bloomberg surveyed 29 economists, with just two expecting a 25-basis-point increase in June, while the majority believe rates will remain unchanged.

However, even among economists who currently believe the central bank will keep rates steady, there is a growing sense that the tide may be shifting.

Doug Porter, BMO’s chief economist, acknowledged the case for further rate hikes, with the decision on July 12 being a likely candidate.

Source: Canadian Mortgage Professional