‘Hawkish’ Bank of Canada has some economists pulling forward calls for rate hikes

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeNewsEconomy'Hawkish' Bank of Canada has some economists pulling forward calls for rate hikesGiven all this uncertainty, the right thing for the Bank of Canada to do is stand pat, said one economistLast updated 12 minutes ago The Bank of Canada warning of tightening lending conditions is further proof that a hike is not on the table. Photo by HYUNGCHEOL PARK/PostmediaThe Bank of Canada held its benchmark lending rate at 2.25 per cent on Wednesday, but economists are split on the outlook for this year and 2027 due to the threat of inflation spreading and the effect of tariffs on growth.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountHere’s a look at what some of them are forecasting.‘Hawkish tone’: Desjardins“Confronted with another spike in oil prices and a fresh wave of U.S. protectionism, Canadian central bankers remained firmly on the sidelines, highlighting their difficult balancing act,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.Despite the turbulence, Canada’s economy grew 3.3 per cent on an annualized basis in the second quarter, and he said the central bank has indicated it doesn’t think the latest round of United States tariffs poses a threat to gross domestic product, especially since Ottawa announced a series of support programs to buffer some of the effects.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againMendes said the Bank of Canada appeared to suggest the greater threat lies with inflation from higher fuel prices that could spread to other parts of the economy.Desjardins expects the Bank of Canada to leave rates on hold for the rest of the year and then hike them by 50 basis points to 2.75 per cent in the first half of 2027.Watch out for December: Capital Economics“The Bank of Canada delivered a more hawkish message,” Stephen Brown, chief North America economist at Capital Economics Ltd., said in a note, citing the central bank’s view that inflation risks have increased.As evidence that policymakers could be contemplating a move on rates, he noted that they replaced a line in the statement that rates “remain appropriate” with one that said the Bank of Canada is ready to adjust rates as needed.Bank of Canada governor Tiff Macklem indicated he isn’t too worried about the effect of tariffs on Canada’s growth, though Brown added that policymakers acknowledged the escalating trade dispute between the United States and Canada is adding uncertainty at a time when labour demand is still weak.With no end in sight to the U.S.-Iran conflict and elevated fuel prices, Capital has pulled forward its call for a rate hike to December from June next year.‘Bones’ for the doves: Rosenberg Research“For the doves like us, there were plenty of bones that were dished out,” David Rosenberg, president of Rosenberg Research & Associates Inc., said in a note on the latest rate decision.“Bones” thrown included the Bank of Canada’s assessment that inflation has yet to spread beyond the cost of fuel, strong second-quarter growth based on “temporary factors” and new tariff risks upending the sustainability of the country’s economic recovery.Rosenberg said he expects policymakers to hold rates “for some time to come,” especially given the lukewarm demand for labour, which “seals the deal for a stand-pat policy stance, but with a bias more to ease than tighten down the road.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.He also said the Bank of Canada warning of tightening lending conditions is further proof that a hike is not on the table.“It does not appear to me to be a tightening in financial conditions that the Bank of Canada views as being desirable,” he said.‘Moving parts’: KPMG Economics“There are a lot of moving parts right now in the Canadian economy,” Ali Jaffery, chief economist at KPMG Economics, said in a note, pointing out the economy is still not operating at full tilt alongside more trade uncertainty.Also, the longer the U.S.-Iran war lasts, the greater the danger that inflation — sitting at the top end of the Bank of Canada target range at three per cent — spreads beyond the gas pumps.Given all this uncertainty, he said the right thing for the Bank of Canada to do is stand pat.If a rate move were in the cards, Jaffery said the odds lean to a cut as the risks to growth outweigh those from inflation.“We continue to expect the Bank of Canada to remain on hold until the end of 2027,” he said.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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