Where Do Interest Rates Go from Here?
by Yvonne von Jena | January 29, 2018
On January 17th, the Bank of Canada increased its overnight rate target to 1.25%. Here’s how we got here and where rates are expected to go.
The central bank pointed to unexpectedly solid economic numbers as key drivers behind its decision. It had been widely expected to raise its rate after data in recent months showed gross domestic product (GDP) growing, the job market healthy and the cost of living ticking higher.
The increase followed hikes in July and September 2017, which at the time were in response to a surprisingly strong economic run that began in late 2016. The bank's benchmark rate is now at its highest level since 2009.
In response to this recent rate hike by the central bank, many lenders increased their own prime lending rates. As of January 18th, all five big banks now have the same prime lending rate of 3.45%, up from 3.2% prior to the central bank’s move. This, in addition to new stress testing requirements put in place, are expected to put pressure on home buyers and refinances.
So where do rates go from here? It seems that most economists expect rates to continue to increase.
Here’s a summary of Canada’s top economists’ estimates, from the Financial Post:
BMO: Douglas Porter, Chief Economist
Capital Economics: David Madani, Senior Canadian Economist
CIBC: Avery Shenfield, Chief Economist
Gluskin Sheff: David Rosenberg, Chief Economist
RBC Dominion Securities: Mark Chandler, Head of Canadian Rates Strategy
TD Economics: Brian DePratto, Senior Economist
Data dependency of course means that this is not a lock. Developments in Stephen Poloz’s list of areas to watch, including interest rate sensitivity, labour market developments, and inflation dynamics could easily bring the next hike forward, or push it back.