Thirteen of 17 economists surveyed by Bloomberg say the Canadian economy is proving less sensitive to higher rates than previously believed. Almost half now say the Bank of Canada will raise its benchmark overnight rate, currently 4.5 per cent, between now and September. In the March survey, analysts unanimously said Governor Tiff Macklem’s next move would be a cut.
The survey data suggest those perspectives are shifting. Canada’s economy grew at a 3.1 per cent annualized pace in the first quarter, stronger than projected, while employers have added 344,000 jobs in six months. Consumer spending has been steady. It’s prompted some to change their minds about how tight monetary policy needs to get to bring inflation to heel.
Economists at two of Canada’s major lenders — Bank of Nova Scotia and Toronto-Dominion Bank — say the central bank will raise borrowing costs at its meeting Wednesday, with markets putting the likelihood at almost a coin flip. Nearly 90 per cent of respondents in the Bloomberg survey say policymakers have given sufficient notice to start boosting rates again.
Asked to respond to the survey, Finance Minister Chrystia Freeland’s office defended the government’s “responsible fiscal plan,” noted that Canada has the lowest debt-to-output ratio among the Group of Seven, and said immigration is an important driver of economic growth.
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