Rate rises likely in October and January
An updated forecast from CIBC Capital Markets is calling for two BOC interest rate hikes in the coming three months.
The firm’s economists say that the USMCA deal to replace NAFTA was expected so an October rate rise was already forecast, however recent positive data sets suggest the BoC could make a further hike earlier than previously expected.
January 2019 is now looking likely, bringing earlier forecasts for the spring forward, with the BoC overnight target rate reaching 2.0%.
“After that, though, the elevated sensitivity of households to rising interest rates will still require a prolonged pause by the central bank,” the CIBC Capital Markets team says.
Economic growth to slow
While the new free trade agreement with the US and Mexico will remove some uncertainty, the CIBC economists still highlight several challenges to economic growth.
These include the ability to attract and retain talent, living with higher interest rates especially for those with mortgages, and a predicted US slowdown by 2020.
Among the positives in the near term are stronger growth for Alberta following better-than-expected oil production levels.
The forecast is for 2018 growth to be 2.1%, down from 3.0% in 2017; with 1.8% for 2019 and 1.3% for 2020.
