Bank of Canada likely to hike again in July: TD

With central bankers trying to navigate a soft landing while also decisively combating inflation, the Bank of Canada is expected to hike interest rates again next month, says TD Economics in a new report.

After the Canadian economy led the G7 in the first quarter, and April brought strong inflation and a rebounding housing market, the Bank of Canada came off the sidelines to raise rates again in June, and TD’s economists are anticipating another 25-basis-point rate hike in July.

“We expect the BoC will hike rates again in July to 5.00% as it enters this trial-and-error stage of fine tuning the policy rate,” it said.

With rates still heading higher, TD has pushed back its expectations for the central bank to start easing.

“With another hike still being contemplated, it would be unusual for a rate cut to materialize in early 2024 absent a harder landing in the economy,” it said.

As a result, rate cuts likely aren’t in the cards until the second quarter of next year at the earliest. “[E]ven this could prove optimistic if core inflation metrics fail to offer convincing evidence of decelerating back to the BoC’s 2% target,” the report said.

The central bank will be closely watching the impact of its rate tightening on households and businesses. “Typically, a real interest rate in the 1–2% range has been consistent with hard economic landings,” the report noted.

While the data indicate no sign of a recession yet, “the risk remains elevated as central banks probe for the magic number on the policy rate that will break the back of inflation,” the report said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.