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When will the Bank of Canada put the brakes on its rate-hike campaign?
6/27/2023 | Posted in Canadian Economy and Interest Rates by Paul DeAdder | Back to Main Blog Page
With the Bank of Canada raising its key overnight borrowing rate to 4.75% in early June, it’s only a matter of time before the institution puts a cap on its series of rate hikes – and the hard stop might come sooner than expected, according to economists polled by Bloomberg.
The central bank is anticipated to increase its policy rate to 5% by the third quarter of this year to reach its highest point since 2001, per Bloomberg’s latest monthly survey of 25 economists.
The final hike for the current round of increases, which are meant to push stronger-than-expected economic demand down to the BoC’s 2% inflation target, could happen as early as the central bank’s next policy announcement on July 12.
Overnight swaps traders are placing odds of a move next month at about 75%, Bloomberg said.
Analysts surveyed by Bloomberg are also expecting Canada’s GDP to contract in the second half of 2023, with annualized declines of 0.1% in Q3 and 0.2% in Q4.
Polling indicated more conservative medium-term estimates of economic performance, with expectations for growth in 2024 moved down to 0.7%.
Inflation is likely to settle at 3% annualized by the end of 2023, markedly higher than the 2.7% consensus registered in an earlier Bloomberg survey.
“Whether or not their aggressive rate-hiking cycle turns out to be a mistake or not won’t be about the evolution of inflation,” Frances Donald of Manulife Investment Management told BNN Bloomberg recently.
“It will be about how much it costs the Canadian public to arrive there, and whether Canadian households and businesses should pay the price for the inflationary hangover of [the pandemic].”
Source: Canadian Mortgage Professional
