There’s been a great deal of controversy over the future course of interest rates in this country, and rightly so.
The Bank of Canada has been straddling those policy-issue divides since the Great Recession of 2008-09 and into the not-so-great, nor consistent, monetary normalization phase.
Now, the central bank is striking while the economy remains hot — with a rate increase this month coming closely behind a surprising July increase, which had been the first upward move in seven years and one that many analysts had expected to be a little farther down the calendar.
Events in the economy may change that.
For one, it’s already accepted wisdom that growth will slow in the second half of this year, giving some time for the blistering pace in the first two quarters to settle into a more comfortable and sustainable pace, one that can hold inflation relatively steady as excess growth capacity is gobbled up and jobs are created.
Gross domestic product was forecast in the central bank’s July quarterly monetary policy report to be around 2.8% for all of 2017.
Reflective of the economy eating up much of the excess capacity in the system during the first half of this year, the central bank sees a slower pace of growth in the last two quarters. Overall GDP for 2018 and 2019 will level off to around 2% and 1.6%, respectively, according to both official and private forecasts.
The concern for the Bank of Canada is finding the right balance and maintaining it without tripping over any unforeseen obstacles, such as the challenges of Brexit, U.S. President Donald Trump and NAFTA providing new global concerns and uncertainties.
