Outlook for BoC rate hikes

A rate hike from the Bank of Canada is expected on Wednesday, increasing the central bank’s benchmark rate 25 basis points to 1.75%. But economists don’t expect the pace of rate hikes is picking up.

While some might expect that the new trade deal in place for Canada, the U.S. and Mexico (the USMCA) has removed economic risk, other uncertainties persist. Those include the transitory effect on inflation of higher oil prices and concerns over household debt levels—factors mentioned by the central bank’s senior deputy governor after the last rate announcement.

The impact of rate hikes on highly indebted households is arguably “the most prominent reason” for a gradual pace, says a weekly financial digest from BMO. “Credit growth has slowed and debt ratios have levelled off, but rising interest rates have pushed debt service ratios higher, and that’s what matters most for current policy settings,” it says.

The Canadian economy also faces U.S. tariffs on steel and aluminum imports, says a CIBC report previewing the central bank’s rate hikes. With elevated debt levels as well as an economy that’s tracking about 2% growth over the last year, CIBC doesn’t expect the pace of rate hikes to increase over the medium term, with the next hike in January. BMO has the same forecast.

See the key economic forecasts of CIBC and BMO.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.