Odds of bank rate hike grow after Poloz remarks on inflation
OTTAWA Investors are raising bets the Bank of Canada will move ahead with an interest rate hike next month, after governor Stephen Poloz reiterated his outlook for higher borrowing costs.
Odds of a hike at the July 11 rate decision jumped to more than 70 per cent Thursday, from just over 50 per cent a day earlier, after Poloz told reporters he expects to continue raising interest rates in spite of mounting trade tensions because inflation has already hit the central bank’s two per cent target.
“We’ve said clearly that, given where the economy is, we’re in a situation where the economy will warrant higher interest rates,” Poloz told reporters after a speech in Victoria. “We’ll ensure that that is a gradual process because there are certain issues that we must monitor along the way ...”
Poloz said the economic “big picture” supports a withdrawal of stimulus given interest rates remain at historically low levels. The central bank also isn’t likely to be derailed by “single-data points,” referring to a string of disappointing economic numbers in recent weeks, or heightened trade uncertainty whose actual impact remains unknown.
The speech and press conference were Poloz’s last scheduled public appearances before his July 11 policy decision. Investors had been paring back expectations in recent weeks for a hike next month as trade tensions escalated globally and weak economic data cast some doubt about the underlying strength of the economy.
While Poloz’s speech Wednesday focused on why the central bank should avoid over-communicating policy intentions, he was definitive at the press conference about the overall direction of the rate path.
The Bank of Canada has already raised interest rates three times since last July, bringing its benchmark rate to 1.25 per cent.