After already dialing up the overnight rate twice this year, some experts believe it’s likely that the Bank of Canada will hike its influential rate further this fall.
TD Senior Economist Brian DePratto says language used by the central bank’s Deputy Governor Tim Lane during a recent speech reaffirms that a third rate increase before the year’s end is the most realistic scenario.
The overnight rate, which influences mortgage rates, sat at a historically low level of 0.5 per cent before the Bank of Canada announced two 25 basis point hikes, one in July and the second earlier this month.
In a research note, DePratto described Lane’s speech — given Monday to the Saskatoon Regional Economics Development Authority — as significant as it was the first by the Bank of Canada since the July rate hike.
“Now that the 'insurance' interest rate cuts of 2015 have been removed, the key question has become when the process of interest rate normalization will get underway, and how quickly it might progress,” writes DePratto.
The economist noted that Lane, whose speech focused on trade and the export challenges that Canada has faced, adopted a more positive tone when addressing the country’s economic outlook than the central bank has taken on recently.
While strong GDP growth currently supports “further monetary tightening,” DePratto says that another hike may be delayed to 2018 if the Bank of Canada concludes that the year’s two previous rate increases negatively impacted the country’s economic growth outlook too greatly.
TD is not the only major Canadian financial institution predicting another hike before the end of the year. Earlier this month, National Bank Senior Economist Marc Pinsonneault told BuzzBuzzNews that he expects an increase in December, citing two key indicators: the record-level rate of employment among prime-aged workers and the closing of the economy’s output gap.
“The bank wouldn’t want to be behind the curve,” he said.
But market observers aren’t all on the same page when it comes to the timing of the next rate hike. BMO Senior Economist Robert Kavcic has stated he believes the Bank of Canada will hold the rate steady at 1 per cent until 2018.
There are two rate announcements remaining in 2017. On October 25th, the Bank of Canada will make an announcement, accompanied by the release of its final Monetary Policy Report of the year. The last rate announcement for 2017 will be made on December 6th.