Photo: James Bombales

The Bank of Canada announced today that it would hold its target for the overnight rate at one per cent. But will there be further rate increases next year?

The decision comes after the bank hiked the overnight rate, which influences the mortgage market, by 25 basis points in both July and September. Prior to these hikes, the overnight rate sat a historically low level of 0.5 per cent.

“Recent Canadian data are in line with October’s outlook, which was for growth to moderate while remaining above potential in the second half of 2017,” writes the Bank of Canada, in a statement.

“Employment growth has been very strong and wages have shown some improvement, supporting robust consumer spending in the third quarter,” the bank adds.

In line with the bank’s Monetary Policy Report, published in October, the bank kept its overnight rate steady as the current stance of monetary policy remains appropriate.

The bank notes that business investment continued to contribute to growth, and public infrastructure spending is becoming more evident in the bank’s data.

In addition, the housing sector has continued to moderate and inflation has been slightly higher than expected, and will continue to be driven by temporary factors, including gas prices.

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Many economists had predicted the overnight rate would remain unchanged, including BMO’s chief economist Douglas Porter.

According to the economist, the bank’s announcement was “a bit more dovish than expected,” suggesting it will be cautious on further rate hikes.

Porter says that a rate hike in January is unlikely, but the next increase will be in March  2018.

“The BoC appears very patient at this juncture, with little appetite to move in January despite the near-record low jobless rate. They will be minding NAFTA progress (or otherwise), any early impacts from the OSFI rule change at the start of 2018, and how Q4 growth, wages and prices shape up,” writes Porter in a statement.

TD Senior Economist Brian DePratto agrees that another rate hike could arrive in the near-future.

“With economic growth appearing likely to exceed the Bank’s 2.5% expectation for the fourth quarter of this year, things continue to point to a hike sooner rather than later,” writes DePratto.

“However, as today’s statement shows, nothing is a done deal until the day of the decision,” he adds.

The bank’s next scheduled date for announcing the overnight rate target is January 17, 2018.

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