Key questions ahead of the Bank of Canada’s September rate decision — via financialpost BoC Economy
, putting the chance of a full-percentage-point hike at 20 per cent, more than the 10 per cent chance of a half-point hike.This advertisement has not loaded yet, but your article continues below.A 75 or 100 basis point hike would have the policy rate break past the Bank’s theoretical neutral range of two to three per cent, the interest-rate range that would neither stoke or hinder economic growth.
“As a result, the Canadian economy’s outperformance in the first half might be fleeting,” wrote Royce Mendes, managing director and head of macro strategy at Desjardins, in a Sept. 2 note. “Growth only held up because services spending was rebounding from lockdowns early in the year and businesses were rebuilding inventories after the worst of the supply-chain disruptions. In other words, the growth we’ve seen in 2022 is not sustainable.
Mendes called breaking above the three per cent mark the moment where “rubber meets the road”, but added that the often-referenced neutral range no longer has relevance today since the economy faces numerous tailwinds and headwinds and inflation stands high above the two per cent target. Mendes also noted that the Bank of Canada’s statement would leave the door open to further rate hikes, but the central bank will have to drop the “soft landing” narrative as recession risks rise.
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