Will the Bank of Canada raise rates July 11?
There is broad consensus that interest rates will rise next Wednesday. The Big 6 Canadian banks unanimously predict the Bank Rate to rise 1/4% before the end of September to 1.50%. This increase is part of a long-term goal to raise the Bank Rate to between 2.5% and 3.5%. This range is known as the "neutral rate".
In a recent poll by Reuters, 19 out of 25 economists predict an increase on July 11th. This is despite uncertainty due to dicey NAFTA trade negotiations with the U.S., increasing concerns over Canadian consumer debt, and a 30% drop in home sales activity.
The Bank of Canada sees that growth has remained resilient and a 1.5% bank rate is low historically. Expert opinions suggest the Bank of Canada will raise rates at least once more before the end of 2018.
Our mid-year forecast, showed that most of the banks economists expect another rate hike this year (see chart below). However, only 8 of the 20 economists polled by Reuters believe policymakers will hike rates to 1.75 percent before the end of 2018.
In summary, it’s safe to expect a rate increase on Wednesday that raises borrowing costs and acts as a drag on the housing market. This begs the question, “Wow long will unsold homes sit on the market before sellers start to make price concessions?”
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