Bank of Canada: Economists weigh in on Wednesday’s suspected rate hike
Economists are forecasting yet another interest rate hike from the Bank of Canada as the central bank continues its fight against runaway inflation.
Economists tracked on the Bloomberg terminal are expecting a 75 basis point increase from the central bank on Wednesday. This hike would bring the benchmark rate to four per cent – a level not seen since the 2008-2009 financial crisis.
“The Bank of Canada will hike rates by 75 basis points and it will remain hawkish,” Benjamin Tal, the deputy chief economist at CIBC, said in a phone interview.
He also expects the bank to communicate that it will not allow a situation in which it is behind the inflationary curve and will continue to focus on consumer demand outpacing the available supply of goods.
Inflation in Canada rose in September to 6.9 per cent on a year-over-year basis, according to Statistics Canada. Food prices also climbed 11.4 per cent in September from a year ago, the data showed.
“A lot is on the line for Canada’s economy,” James Orlando, a senior economist at TD Bank, cautioned.
He said the BoC must continue to hike rates so that inflation is brought under control and price stability is restored. Should it fail to do so, inflation will continue to drive wage increases, which will make it even harder for the bank to fight it later on, he added.
“Being aggressive now with rate hikes reduces the need to be even more aggressive in the future,” Orlando stated.
So far, the BoC has raised interest rates five times this year. This strategy has some economists worried that the hikes will trigger a recession.
“The Canadian economy will struggle to shoulder this interest rate hike – especially in the housing market,” Eric Lascelles, the chief economist at RBC Global Asset Management, said.
He added that the market is expecting a 75 basis point increase Wednesday, increasing from 3.25 per cent to four per cent – but has even priced in the chance of a 100 basis point increase. The forecasted hike will only raise the odds of Canada entering a recession in 2023, he noted.
“A recession is staring Canada right in the face,” David Rosenberg, the founder and president of Rosenberg Research, said.
Rosenberg anticipates a rate hike on Wednesday, though is skeptical how much further the bank can go after this.
“The overnight rate as of tomorrow might be the highest since the 2008-2009 great recession and to argue that the bank isn’t super tight is beyond disingenuousness,” he stated.
The bank’s intense approach, however, should be successful in cooling down Canada’s economy, Rosenberg argued.
“Inflation is going to melt in the coming year,” Rosenberg said.