Photo: James Bombales
Last week, red hot Canadian job numbers had economists scrambling to switch their predictions for the Bank of Canada’s next rate hike to January 17. Now, a new survey has those economists saying a January rate hike is a sure thing.
The Bank of Canada’s quarterly Business Outlook Survey has found that Canadian businesses had an overwhelmingly positive outlook about the economy in 2018. The broader-based indicator of future sales came in at 55 per cent, the third highest reading on record.
“Businesses are indicating rising and inflationary capacity pressures that will reinforce the [Bank of Canada’s] bias toward hiking rates next week,” writes Scotiabank VP and head of capital markets economics Derek Holt, in a recent note.
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The survey comes on the back of 13 straight months of job gains, and an unemployment rate of 5.7 per cent, the lowest level since 1974.
Last year, the Bank of Canada hiked the overnight rate twice, bringing it up 50 basis points from its historically low 0.5 per cent. Now, Holt predicts the Bank will raise the overnight rate by 25 basis points on January 17, and he’s not alone.
“I think this survey adds to the evidence that the economy remained quite strong in the fourth quarter,” RBC economist Josh Nye tells BuzzBuzzNews. “We’re seeing a positive economic outlook from businesses, which seem to be responding more to economic conditions than to any concerns about NAFTA.”
Uncertainty about the ongoing NAFTA negotiations has been listed by many economists as potential reason for delaying another rate hike. But according to Holt, it seems likely that the Bank of Canada Governor Stephen Poloz will “deal with NAFTA risks if and when they arise.”
“Canadian businesses’ investment and hiring plans are not indicating great concern toward NAFTA negotiations and that is a big sigh of relief at this point,” writes Holt. “This reinforces Poloz’s bias to…treat it as business as usual in the meantime and conduct monetary policy accordingly.”
Ultimately, Nye feels that the survey is the final push towards a January rate hike.
“We saw this kind of positive sentiment in the Q2 survey, which was followed by a rate hike,” he says. “It seems very likely that this pattern will continue in January.”
As for Holt, he’s not willing to give an absolute prediction — but he does seem pretty confident.
“Does the survey settle with 100 per cent certainty the debate over whether the [Bank of Canada] will hike next week or not?” asks Holt. “Of course not, but it does add to our conviction.”