BoC to hold interest rate, analysts say

Canadian financial institutions are predicting the Bank of Canada won’t change its target for the overnight interest rate at its announcement next week.

In a research note on Friday, CIBC Capital Markets chief economist Avery Shenfeld suggested the central bank wouldn’t raise the interest rate for a third time this year.

Citing strong economic growth, the BoC raised its key interest rate in July and again in September, up to 1%.

Read: What Canada’s hot streak means for interest rates

But analysts don’t expect a third hike when the central bank announces its decision on the overnight rate target on Oct. 25.

While the Canadian economy is close to full employment and coming off strong growth in the first half of 2017, the central bank will likely opt to “monitor” it further before making another move, Shenfeld said.

“Core inflation readings are still enough below target, having been there for some time, that there’s no reason to panic about an inflationary overheating just yet,” he wrote.

Shenfeld also pointed to uncertainties around NAFTA and Ontario’s minimum wage hike, and the “data lags” that prevent economists from measuring the quarterly impact of the September rate increase until March 2018.

“If the Bank needs to ‘monitor’ how the economy is doing with higher rates and other changes in the landscape, we won’t see the next rate hike until the spring of 2018,” he wrote.

Derek Holt, head of capital markets economics at Scotiabank Global Economics, also cited concerns around NAFTA as a reason for the bank to stay put.

“Rules governing trade with the U.S., which accounts for about one-quarter of Canadian GDP plus associated investment, are faced with a degree of uncertainty unseen in at least 25 years,” he wrote in a research note Friday.

Holt predicted no increase next week, and while Scotiabank continues to forecast a hike in December, he has “reduced confidence in such expectations.”

September numbers from Statistics Canada released Friday morning showed the annual inflation rate rose to 1.6%, up from 1.4% in August and a two-year low of 1% in June. The agency also reported that retail sales declined slightly in August.

Read: September inflation rate approaches BoC target

Citing those numbers, Desjardins also predicted the central bank would maintain the status quo.

“Today’s results confirm that Canada’s runaway economic growth started to wind down in the third quarter, which reduces the urgency to swiftly proceed with monetary tightening in Canada,” senior economist Benoit P. Durocher said in a research note.

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