Photo: James Bombales
One of Canada’s Big Six banks predicts the country’s central bank will hike the overnight rate next month.
“At long last, the Bank of Canada has acknowledged that the economy is in good shape and that the worst of the oil shock has passed,” writes Benjamin Reitzes, a strategist at BMO, in a note.
Reitzes is referring to comments Bank of Canada Governor Stephen Poloz made today while speaking with news outlet CNBC.
Poloz told CNBC that two cuts to the central bank’s overnight rate, which influences the mortgage market, had “done their job.”
To counter plunging oil prices and their effects on the largely resource-dependent Canadian economy, the Bank of Canada slashed the overnight rate in July 2015 to a historically low 0.5 per cent, where it has remained since.
But for Reitzes, Poloz’s current outlook speaks volumes about the next rate announcement from the Bank of Canada — which meets eight times a year to set policy — on July 12th.
“He’s not going to give it away, but that’s a pretty strong and clear-cut signal that a July rate hike is very much on the table,” states Reitzes.
Reitzes points to recent economic growth and employment trends as supportive of a rate hike of 25 basis points.
“Over the past 10 months, GDP has grown at the best pace since 2010, and job gains have been the fastest since 2012,” he explains.
After next month’s decision, BMO forecasts the central bank won’t stop there.
“We’re looking for a second 25 [basis point] hike in January,” says Reitzes.
“However, if the BoC (Bank of Canada) continues to beat the drum on rate hikes at the July meeting, we’re open to moving that call to October,” he adds.