Posthaste: Bank of Canada may pause rate hikes when it sees this big data
Good morning,
The big news in the economic world this week comes out Friday with the latest reading of Canada’s gross domestic product.
The last major economic data release before the Sept. 6 interest rate decision, the Bank of Canada will be watching this data closely.
“We think this print is very important for the BoC’s (September) decision,” Carlos Capistran, head of Canada and Mexico economics at Bank of America Merrill Lynch told Reuters. “The BoC is in a data-dependent mode and has not closed the door to further hikes.”
Economists expect to see a slowdown in the economy in the second quarter that could persuade the central bank to pause its interest rate hiking despite a recent inflation reading that came in hotter than expected.
Earlier this month bets on another hike in September rose after July’s consumer price index surged to 3.3 per cent, moving beyond the Bank of Canada’s target range of between one and three per cent.
After growing 3.1 per cent in the first quarter, the preliminary estimate for GDP in the second is 1 per cent, said Royal Bank of Canada economists, but they see it coming in even lower at 0.5 per cent. Both are below the Bank of Canada’s estimate of 1.5 per cent.
“Policy makers clearly are willing to respond with additional interest rate hikes if momentum in the economy isn’t softening enough to ensure inflation pressures will trend lower,” said RBC economists Nathan Janzen and Claire Fan.
“But we expect there will be enough signs of cooling demand to-date for the BoC to forego another increase in the overnight rate in September.”
Some of the drags on the economy in recent months are transitory, economists say, such as the wildfires still raging in Canada.
Stephen Brown, deputy chief North
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