The Bank of Canada is likely done raising interest rates in 2017, according to a new poll of influential primary dealers conducted by news agency Reuters.
The Bank of Canada raised its benchmark interest rate on September 6th for the second time this year amid signs that the Canadian economy is growing at a stronger pace than forecast. And central bank Governor Stephen Poloz appeared to the door open to further rate increases before the end of 2017 – prompting widespread speculation that further monetary tightening is imminent.
However the Reuters poll of primary dealers appears to contradict that sentiment. The median forecast among 10 of Canada’s 11 primary dealers, who deal directly with the Bank of Canada at debt auctions, is for the Bank of Canada to wait until the first quarter of 2018 to raise interest rates again. The view is that the central bank will take time to see how its two back-to-back rate hikes are absorbed by the economy and consumers before taking action again.
“It really very much depends on how the data pan out over the next six weeks or so,” said Benjamin Reitzes, Senior Economist at BMO Capital Markets. BMO expects the central bank’s next move to be in the first quarter of 2018, although further strong performance from the economy would mean “the door is wide open” for another rate increase in October, added Mr. Reitzes.
The Bank of Canada’s overnight interest rate is now seen rising to 1.75% by the end of 2018, according to a separate and wider Reuters poll done late last week. How fast the Bank of Canada can raise rates in 2018 will depend on actions taken by the Federal Reserve in the U.S., economists said. Comments from Fed policymakers in Washington, D.C. last week reduced the likelihood of another interest rate hike south of the border this year amidst weaker than expected inflation data.
The Canadian dollar has gained almost 10% against the U.S. dollar this year, including a nearly 2% jump after last week’s rate hike. While the central bank in Ottawa noted the recent appreciation of the Canadian dollar in its statement on September 6th, it said the currency’s gains in part reflect the strength of the Canadian economy.
