Signs are emerging that the central bank will have to tighten rates further, BMO economist says
The Bank of Canada’s overnight interest rate breaching the 4% threshold is not out of the realm of possibility partly due to the housing market’s recent resurgence, according to the Bank of Montreal.
Accelerated housing activity has been especially apparent in Toronto, which saw a month-over-month sales surge of 11% in August. Trends such as this might indicate that the oft-feared market crash is not likely to materialize despite the volatile economic and fiscal environment, said BMO chief economist Douglas Porter.
“The BoC would likely not be pleased to see the housing market stabilize and even revive anytime soon,” Porter said in an investor report last week.
“Any sign that the most interest-sensitive sector of the economy is holding up surprisingly well will be a clear signal that more tightening than expected may yet be required.”
Read more: Bank of Canada gains traction on inflation approach
Fuelling the possibility of additional BoC hikes is persistently strong commodity price growth, which could continue to force the central bank’s hand as it struggles to contain inflationary pressures.
BMO is anticipating a 75-basis-point hike this week, and the endpoint is likely to reach 3.5% “with clear upside risks,” Porter said. The likely 0.75% hike was in concert with the median estimate in a recent Bloomberg survey of economists.
