Will the Bank of Canada hike rates next week? It looks more and more likely

[Source: Global News, January 8, 2018]

The Bank of Canada (BoC) is likely to raise interest rates again when it makes its next monetary policy announcement on Jan. 17, according to economists at Canada’s big banks.

Increasing the chances of another rate hike is the upbeat tone of the latest quarterly release of the so-called Business Outlook Survey, a closely watched barometer of business sentiment in this country, which the central bank released on Monday.

Canadian companies are feeling optimistic about the future and have plans to boost both investment and hiring, the poll showed. The survey, which was conducted in late November and early December, found that business sentiment had rebounded almost to the height it had reached in the summer, when the central bank implemented its first interest rate increase.

Coming on the heels of a stellar jobs report last week that pushed the unemployment rate to its lowest rate since the 1970s (at 5.7 per cent), Monday’s release was enough to prompt economists to revise their interest rate forecasts.

The Business Outlook Survey “is healthy enough to convince us that the [central bank] is likely to hike rates as early as next week’s decision,” wrote Douglas Porter, chief economist at BMO Financial Group, in a note issue Monday.

“We think last Friday’s impressive employment report tipped the scales in favour of a January rate hike, and today’s release of the Business Outlook Survey gives further weight to that view,” echoed Josh Nye at RBC in a note on Monday.

The share of Canadian firms that would struggle to meet an unexpected increase in demand hit its highest level in 10 years, the report showed, while labour shortages also became more common.

A scramble to meet demand surges could lead firms to hike wages, which could, in turn, push up prices. Higher interest rates, on the other hand, generally cool economic activity and could help keep inflation within the BoC’s desired range.

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