Money Bank of Canada expected to resume tightening key interest rate Wednesday

23:06  10 july  2018
23:06  10 july  2018 Source:   cbc.ca

Bank of Canada expected to resume tightening key interest rate Wednesday

  Bank of Canada expected to resume tightening key interest rate Wednesday The Bank of Canada is widely expected to boost a key interest rate on Wednesday as it resumes efforts to "wean" the economy off low borrowing costs. The bank's target for the overnight rate — what major financial institutions charge each other for one-day loans —   has been at 1.25 per cent since mid-January. Since then, the bank has stood firm on three subsequent rate announcements. That string is generally expected to end this week. As of Tuesday, the implied probability of a rate hike to 1.5 per cent stood at just over 96 per cent, according to Bloomberg.

Traders who invest in a financial instrument known as an overnight index swap reckon there's a better than 90 per cent chance the Bank of Canada will raise its key interest rate on Wednesday . (Chris Wattie/Reuters).

The Bank of Canada , led by governor Stephen Poloz, right, and senior deputy governor Carolyn Wilkins, isn't expected to raise its benchmark interest rate on Wednesday . That's largely because the economic picture has worsened somewhat since the bank 's rate hike in January.

Stephen Poloz wearing a suit and tie: Many economists expect Bank of Canada governor Stephen Poloz will announce an interest rate hike when the central bank makes its decision on Wednesday.© Fred Chartrand/Canadian Press Many economists expect Bank of Canada governor Stephen Poloz will announce an interest rate hike when the central bank makes its decision on Wednesday.

The Bank of Canada is widely expected to boost a key interest rate on Wednesday as it resumes efforts to "wean" the economy off low borrowing costs.

The bank's target for the overnight rate — what major financial institutions charge each other for one-day loans —   has been at 1.25 per cent since mid-January. Since then, the bank has stood firm on three subsequent rate announcements.

That string is generally expected to end this week. As of Tuesday, the implied probability of a rate hike to 1.5 per cent stood at just over 96 per cent, according to Bloomberg.

Bank of Canada expected to raise rate

  Bank of Canada expected to raise rate The Bank of Canada is widely expected to raise its trend-setting interest rate today for the first time in six months. Thanks to stronger economic data, experts are predicting governor Stephen Poloz to hike the rate from its current level of 1.25 per cent.Poloz has followed a cautious, data-dependent approach in recent months and he hasn't touched the rate since raising it in January, a move that came after two earlier increases in the second half of 2017.The central bank's rate decision arrives as Canada faces significant trade-related uncertainties, including stalled NAFTA talks, U.S.

With no change in interest rates expected when the Bank of Canada announces its latest decision this morning, economists and markets will be eyeing the latest update on the central bank 's outlook for the economy for hints on future hikes. Bank has hiked key interest rate twice this year.

The Bank of Canada isn't expected to change its benchmark interest rate on Wednesday . But that doesn't mean it thinks the Canadian economy is chugging along normally. Canada 's central bank has hiked key lending rate three times since last summer.

A hike could lead financial institutions to raise prime rates, and see Canadians pay higher borrowing costs on such products as variable-rate mortgages.

The pending rate announcement comes against a backdrop of somewhat cooler economic growth, gains in employment and inflation running roughly on the Bank of Canada's two per cent target.

"Given that the economy is pretty average at this point, I think that does clear the decks for the bank to slowly but surely get interest rates back to what they would consider to be average or normal." said BMO Capital Markets chief economist Douglas Porter.

"So we're expecting the Bank of Canada to raise interest rates this week."

CIBC is also expecting a hike, which it believes will be the last for this year.

BoC rate hike has both pros and cons

  BoC rate hike has both pros and cons The Bank of Canada's latest interest rate hike means higher borrowing costs for consumers with variable-rate mortgages, loans or lines of credit, but it is also good news for savers and future homeowners. The decision to increase its benchmark interest rate to 1.5 per cent on Wednesday prompted all of Canada's Big Six banks to raise their prime rates, thereby passing the rate increase along to their customers.

Bank of Canada Keeps Rates Unchanged as Expected at 1.25% By Investing.com - May 30, 2018. Investing.com – The Bank of Canada (BoC) decided to keep its benchmark interest rate unchanged on Wednesday .

Governor of the Bank of Canada Stephen Poloz has been slowly tightening monetary policy, but he is expected to refrain from boosting rates further on Wednesday . (Justin Tang/ Canadian Press).

"In Canada, economic news has generally improved for [the second quarter], and although that's likely enough to prompt a quarter point hike in rates on Wednesday, it's not as if the evidence of overheating is so overwhelming," said CIBC Capital Markets chief economist Avery Shenfeld in a recent commentary.

No 'comfortable transition'

The Bank of Canada wants to, and needs to, "normalize" interest rates, said Frances Donald, senior economist with Manulife Asset Management.

"We need to wean ourselves off of those super-low interest rates and toward the more normal interest rate environment," she said. "That's not a comfortable transition for any economy, but for our longer-run economic health, it's necessary."

However, not all forecasters believe Bank of Canada governor Stephen Poloz will tighten monetary policy this week.

In a recent commentary, economists at National Bank said deterioration of the international trade outlook since the last rate decision "ought to give pause" to the Bank of Canada.

Banks raise prime rate to 3.7 per cent

  Banks raise prime rate to 3.7 per cent Banks raise prime rate to 3.7 per centRoyal Bank, TD Canada Trust, BMO, and Scotiabank all say they will increase their prime rate by a quarter of a percentage point to 3.70 per cent, effective Thursday.

The Bank of Canada is forging ahead on tightening monetary stimulus, announcing Wednesday morning it’s raising its benchmark lending rate by a quarter of a percentage point from 0.75% to 1%. This is the second time since July that Canada ’s central bank has raised its key interest rate amid

The Bank of Canada decided to keep its benchmark interest rate right where it is on Wednesday . In justifying its decision, the bank warned that higher gas prices plus minimum wage hikes are expected to have a "transitory impact" on inflation in the short term, but it sees the rate staying at two

"Indeed, with the U.S. threatening to instigate a trade war with China, and with NAFTA negotiations stalling, we don't see conditions as supportive of further monetary policy normalization," they said. "Consequently, we expect the central bank to remain on the sideline this week, an opinion that runs counter to the market's view."

Outlook update

Wednesday's rate announcement will also be accompanied by a quarterly update to the bank's outlook for the economy, but several economists said they don't expect the central bank will alter its forecasts.

"We're not expecting major changes in the growth outlook overall, with the bank not going to take a guess on trade barriers that have yet to be announced," said CIBC's Shenfeld.

Assuming that rates do rise this week, Porter said to watch for any indications the bank will move to the sidelines for a while and see what happens on the trade front, or if it will continue "grinding away" with gradual tightening.

The Bank of Canada has three more rate announcements set for this year: Sept. 5, Oct. 24 and Dec. 5.

Scotiabank said it remains more hawkish on future interest rates than the street, as it is forecasting three rate increases over the next six meetings through the first quarter of 2019 — about one more than the markets are expecting.

Follow @MSNMoneyCanada on Twitter.

Canadian economy adds 31,800 jobs in June .
Canadian economy adds 31,800 jobs in JuneStatistics Canada's latest labour force survey showed the jobless rate for June increased from 5.8 per cent in May to break the six per cent barrier for the first time since last October, when it was 6.2.

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