Rate hikes resuming as early as June - BMG DIY Investor

Rate hikes resuming as early as June

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Strong inflation data coupled with housing market rebound makes case for more BoC tightening

Scotiabank economists say the Bank of Canada is expected to resume hiking interest rates as early as next month.

In the wake of inflation data for April that surprised on the upside, Scotia said the central bank has “more work to do” to curb inflation, with the headline and underlying details of Tuesday’s data all pointing to stronger-than-expected price pressures.

“I would assign high market probability to a June hike with info to this point,” a report from Scotiabank said.

Tuesday’s inflation data comes alongside other recent evidence suggesting that, so far, the central bank’s rate hikes haven’t managed to “open up disinflationary slack in the economy or labour market.” The housing market also appears to be rebounding, which fuels further inflation risk.

As a result, Scotiabank argued, “There is a highly compelling case for returning with a hike at the June meeting and if not then July’s odds go up.”

Scotia also warned against expecting the Bank of Canada to feel the need to signal that rate hikes are coming before actually raising rates again.

“I don’t believe that the [Bank of Canada] thinks it has to hold anyone’s hand in setting up a hike with explicit guidance. After all, it surprised on three out of eight meetings last year!” it said.

RBC Economics, in response to Tuesday’s inflation data, said the BoC is is “expected to stay on the sideline for the remainder of the year.”