Could the upcoming Bank of Canada interest rate decision in September be the last bump up in the central bank’s current rate hiking cycle? At least one analyst at the Canadian Imperial Bank of Commerce seems to think so.
CIBC’s managing director and head of fixed income, Ian Pollick, said in an Aug. 22 note his team suspects a “narrative shift is coming” and forecasts the bank will put a pause on its rate hiking cycle after hiking 75 basis points on Sept. 7. This would bring the policy rate up to 3.25 per cent, matching the bank’s previous guidance that the benchmark rate could move above neutral at between two to three per cent — a reading that would neither help nor hinder economic growth.
Pollick added that, if his team is correct, the next big shoe to drop would be what happens in October, given the market expects a series of 50 basis point hikes heading into the fourth quarter.
“We anticipate that the September statement will lean towards data dependence rather than outright rhetoric suggesting rates will ‘rise further’ as seen in the July statement,” Pollick said in the note to clients. “For this reason, if we are correct that the bank is entering a period of inertia in Q4, it is very likely that market sensitivity will shift away from central bank signalling and towards data — predominantly inflation, but to a lesser extent growth.”
Despite changing market priorities, Pollick further argued that this would have a minimal impact on flattening yield curves.
The Bank of Canada’s path of rate hikes this year has been relatively aggressive in its aim to stamp out inflation. Though the central bank stayed its hand on increasing rates in January, which drew confusion and criticism from economists at the time, it went on to bring a series of significant rate hikes in subsequent meetings. It wasn’t until March 2 that the bank delivered a quarter basis point hike, bringing the policy rate up to 0.5 per cent. It was also the first rate hike since 2018, and brought in amid concerns over economic fallout from the Russian invasion into Ukraine.
“The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty,” the Bank of Canada said in a statement at the time. “Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth.”
Global supply chain snarls, China’s pursuit of a zero-COVID-19 policy this year, and high levels of federal government spending only fuelled inflation further, dogging the central bank as it battled to bring it under control.
Bank of Canada governor Tiff Macklem acknowledged in late April that the bank had misjudged inflation and pledged to act more “forcefully” to bring it down. More recently, as the rate of inflation dipped from 8.1 per cent to 7.6 per cent in July, Macklem said the Bank of Canada had more work to do to bring inflation down closer to two per cent.
The bank delivered a total of four modest rate hikes, with the exception of a supersized full percentage point hike in mid-July to match the U.S. Federal Reserve’s 75-basis-point hike. The bank characterized this as a move to front-load the path of higher rates with a sizeable one-time hike.
Where the next rate hike could bring the benchmark rate is up in the air, but for the most part, economists are predicting between a 50 and 75-basis-point hike. However, most seem to agree that we won’t be seeing another 100-basis-point hike.
In July, Kiefer Van Mulligen, economist at The Conference Board of Canada, teased the question of whether July CPI data signals the end of the country’s inflationary ascent but noted it would take more than one month of good news to sway the Bank of Canada.
“Headline CPI may have fallen but it has a long way to drop before reaching the bank’s inflation target range,” Van Mulligen said. “The summer of our inflationary discontent is not over yet.”
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LINE 5 REDUX Canada has invoked a 45-year-old treaty for the second time to trigger direct negotiations with U.S. President Joe Biden’s administration to ensure that oil flows into southern Ontario through Enbridge Inc.’s Line 5 pipeline. The treaty was invoked in response to “serious concerns regarding the possible shutting down” of the pipeline on the Bad River Band tribe’s reservation in northern Wisconsin. “The economic and energy disruption and damage to Canada and the U.S. from a Line 5 shutdown would be widespread and significant,” Foreign Affairs Minister Mélanie Joly said in a statement. “At a time when global inflation is making it hard on families to make ends meet, these are unacceptable outcomes.” Read on for the full story by the Financial Post’s Naimul Karim. Photo by Cole Burston/Bloomberg files
Ernie Steeves, minister of finance and treasury board, will announce New Brunswick’s first-quarter financial results for 2022-2023 over Zoom.
The Parliamentary Budget Officer will post a legislative costing note entitled “Estimate for the entirety of Bill C-221: An act to amend certain acts in relation to survivor pension benefits” on the website at pbo-dpb.ca.
Prime Minister Justin Trudeau participates in a roundtable discussion about housing affordability. Housing Minister Ahmed Hussen will also be in attendance. They will later make an announcement on housing.
Prime Minister Justin Trudeau meets with Ontario Premier Doug Ford.
Selina Robinson, Minister of Finance, will be joined by Carl Fischer, comptroller general of B.C., for an update on the Province’s 2021-22 Public Accounts, the audited financial statements for the fiscal year ending March 31, 2022.
Stand.earth is launching a new investigative report focused on the B.C. government’s process to defer logging in the most at-risk old-growth forests.
Today’s data: Canadian current account balance, U.S. Conference Board consumer confidence index
Earnings: Bank of Montreal, Alimentation Couche-Tard Inc., Best Buy Co. Inc., HP Inc.
Job vacancies in Canada reached yet another record in June, in the latest indication that a tight labour market is adding to inflationary pressures.
Statistics Canada reported Aug. 25 that there were 1,037,900 unfilled positions in June, up from 1,005,700 in May. The vacancy rate, which measures unfilled positions as a percentage of total positions, was 5.9 per cent, matching the record high recorded in September 2021.
It was the third-straight month that vacancies topped one million positions.
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Today’s Posthaste was written by Stephanie Hughes (@StephHughes95), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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