Residential Market Commentary - Rate Debate

The debate about an impending rate hike by the Bank of Canada is getting a little more vigorous. 

Speculation about a Canadian increase started to heat up following a boost by the U.S. Federal Reserve on September 16.  The U.S. central bank raised its key lending rate – for the first time in three years – in response to persistent inflation, driven by high oil prices as a result of the U.S.-led war in Iran. 

Bank of Canada Governor Tiff Macklem has been clear that policymakers here will follow Canadian data, which is currently different than what is coming out of the States.  Canadian inflation is lower and is not under the same energy price pressure as the U.S., and Canada’s economy is seen as having more room to grow. 

These factors have not prevented bond traders from pricing-in at least one BoC rate increase before the end of the year, with some forecasting two hikes.  Several of the country’s, well known, bank economists are baulking at those projections.  They argue that the bond market is getting ahead of the data, and that tariffs and trade uncertainty are bigger factors than inflation right now. 

As for the Bank of Canada, Macklem is not ruling out rate increases if they are required. 

“We don’t want to raise our policy rate and restrain growth if inflationary pressures are contained.  But nor do we want to be too slow to respond if inflationary pressures are becoming more persistent,” he said.  "We are going to make our best judgment and decide what we think is the best thing to do to bring inflation back to target." 

- First National LP