Another rate decision brings T-Mack back into the hot seat.
Driving the news: Today’s Bank of Canada (BoC) rate decision is likely to be tighter than Survivor’s Final Tribal Council, but 16 out of 24 forecasts are expecting a 0.25 percentage point hike—including the nation’s largest bank economics groups. So, buckle up, everyone.
- The expected hike would bring the base rate to 5% and trigger Canada’s biggest banks to adjust prime rates similarly—the lowest offered to the public—from 6.95%.
Catch-up: You’ll likely remember that the BoC decided to pause rate hikes in March and April (offering a needed reprieve for variable rate mortgage holders) after eight consecutive hikes stemming back to March 2022. Since then, the economy’s held strong… too strong.
- Not long ago, markets had priced in a rate cut by now—that was before forecasters lowballed growth estimates, giving the BoC reason to think more hikes are needed.
- And if that doesn’t seal the deal, then last month’s stronger-than-expected jobs data might. The unemployment rate rose to 5.4%, but the economy added 60,000 jobs.
Why it matters: Mortgage interest costs have already soared over 30%, and about three in five Canadians say they’ll be in financial trouble if rates go much higher. But still, CPI-trim (which factors out extreme price movements) is at 3.8%, nearly double the bank’s target.
- Per Scotiabank economist Derek Holt, with every passing month of strong economic data and high inflation, “the BoC runs the risk of never getting control of inflation.”
Big picture: It’s a “race against the clock to convince businesses and households [that the BoC can hit their 2% inflation target] as they make decisions about potential wage gains, contracts, purchasing and investment,” writes Holt. But so far, it’s not looking too good.—SB