A massive rate jump at the central bank’s meeting next month is a near certainty, economists say
Despite clear indications of a weaker economy, market observers are anticipating more rate hikes by the Bank of Canada as it attempts to rein in mounting inflation rates.
For Douglas Porter, chief economist at BMO Capital Markets, the near-future environment will be a frothy one that would compel another hike next month.
“The [BoC’s] takeaway will be that while growth is clearly cooling, conditions remain drum-tight and wages are stirring,” Porter told BNN Bloomberg. “We believe this backdrop is consistent with another rate hike at the September meeting, but of a less aggressive nature than the mega 100bp move in July. We look for a 50bp hike at that time.”
Read more: Economist: Rate hikes leaving an unmistakable mark on the labour sector
Stephen Brown, senior Canada economist at Capital Economics, noted that the slowdown in the jobs market will be a major factor in the central bank’s rate adjustment strategy. He is anticipating a 75bp hike in September, “although the chance of a smaller 50bp hike has risen.”
“With employment falling, policymakers at the bank will have a harder time shrugging off the weakness in GDP than their peers in the US, where employment growth is strong,” Brown said. “As the unemployment rate was unchanged at its record low rate of 4.9%, however, and the 0.4% month-over-month rise in average hourly earnings was too high for comfort in terms of meeting the 2% CPI inflation target, it is too soon to expect the bank to pivot.”
Andrew Grantham, senior economist at CIBC Capital Markets, agreed that the labour sector’s trajectory will dictate the central bank’s approach for the foreseeable future.
“The Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting,” Grantham said. “Evidence that the economy is slowing due to weakening demand, rather than supply constraints, will bring a pause in this rate hike cycle following the next hike.”
