Photo: James Bombales
In a year that has already seen the Bank of Canada raise the overnight rate twice, many experts are predicting another hike is coming in December. But one economist says that the next hike is much, much further away.
According to CIBC Senior Economist Avery Shenfeld, with all of the unpredictable factors affecting Canada’s economy right now, the next rate hike could be as far away as the spring of 2018.
The overnight rate, which influences mortgages, sat at a historically low 0.5 per cent earlier this year, before the Bank of Canada announced two 25 basis point hikes in July and September.
“What the Bank of Canada and investors have to judge, is the degree to which the economy might slow without further interest rate medicine,” writes Shenfeld, in a CIBC research note published today. “The Bank has the tools to do some of that work… But other uncertainties are ones that can’t be assessed by pushing a few buttons.”
Shenfeld says that while there are things the Bank does know about the state of the Canadian economy — including strong employment numbers, and the likelihood of eventual inflation pick-up — it has to wait and see what the effects of recent changes will be.
“There’s no button on the computer for “NAFTA ends.” There’s no button on the computer for “new mortgage rules.” There’s not historical precedents that can be used to confidently measure the growth and inflation impacts of a minimum wage hike as large as the one Ontario is about to institute,” he writes.
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Shenfeld says that, due to data lags, a full picture of how the Canadian economy will adapt to these factors won’t emerge until March 2018 — Ontario’s minimum wage will be implemented in January, while NAFTA talks will drag well into the new year.
“The only logical conclusion is that the Bank of Canada will simply have to wait and see whether growth and inflation trends compel a further tightening,” he writes.
There are two rate announcements left in 2017, on October 25th and December 6th.
Other economists have so far maintained their prediction of a December rate hike. Head of Scotiabank Capital Markets Economics Derek Holt gives a December hike 50-50 odds, while TD Senior Economist Brian DePratto writes in a recent note that, despite changes to mortgage rules, the bank will hike rates “most likely in December.”