The Bank of Canada held its key interest rate unchanged at 1 per cent on Tuesday, as expected. However, the policy statement hinted that rate hikes are in the works, noting that stimulus (that would be low interest rates) will have to be “eventually withdrawn.”
That central bank has held rates unchanged since last October, when expectations were high that the improving economy would push the bank toward a series of hikes. But, with the Canadian dollar surging and the U.S. economic recovery showing signs of sputtering, those expectations were subsequently revised. So, when will rate hikes resume? And how many hikes are we talking about? Let’s turn to the economists for their reactions.
Michael Gregory, Bank of Montreal: “We recently changed our forecast, calling for a couple of quarter-point rate hikes before yearend. We remain comfortable with that view.”
Craig Alexander, Toronto-Dominion Bank: “The timing of the eventual tightening of monetary policy will be heavy affected by how the global risks play out. If the risks diminish over the coming months, the Bank of Canada could resume raising rates in September, after being on hold for a full year. TD Economics believes that an overnight rate of roughly 3 per cent would be appropriate by mid-2012. However, our reading of the Bank of Canada’s commentary on the economy suggests that the central bank may believe that something less than 3 per cent might be required.”
Avery Shenfeld, CIBC World Markets: “While we see less than 50 per cent odds of a rate hike in July given the “carefully considered” phrase [in the bank’s statement], we see the Bank moving on rates by September, with a 75 basis point hike [or three quarters of a percentage point] in total by year end.”
Dawn Desjardins, Royal Bank of Canada: “As there is more clarity on how some of the key international issues are playing out combined with indications that the domestic economy reaccelerated in the summer months are likely to tee up a rate increase in September with subsequent hikes likely in the remaining two meetings of 2011. We are forecasting that the policy rate will end 2011 at 1.75 per cent.”
