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It\u2019s been awhile since there\u2019s been this much drama around a Bank of Canada rate decision. <\/p>\n
Just a few weeks ago the central bank was widely expected to hold fire on interest rates for the rest of the year. Then governor Tiff Macklem spoke from the sidelines of an International Monetary Fund meeting and something shifted. <\/p>\n
Macklem said higher energy prices from the Iran war were boosting economic growth and increasing the risks of higher inflation ahead. This followed a more hawkish tone from the bank since early September. <\/p>\n
His comments pushed markets to increase their bets to 76 per cent that the bank would raise its policy rate to 2.5 per cent this Wednesday and convinced many of the country\u2019s top economists to change their calls. <\/p>\n
\u201cWe can\u2019t see why Macklem would have hastened to make these comments at the IMF meeting, just before the Bank\u2019s media blackout, other than to signal an October hike,\u201d said CIBC\u2019s chief economist Avery Shenfeld in a note. <\/p>\n
Their calls may have changed, but not their minds. <\/p>\n
Royal Bank of Canada chief economist Frances Donald said her team\u2019s expectation of a rate hike Wednesday is not because they think there is a need for such a move, but because of policymakers\u2019 recent communications. <\/p>\n
In RBC\u2019s view \u201cthe case for patience is strong.\u201d <\/p>\n
They see no evidence that higher energy prices are bleeding into broader inflation and though the Canadian economy is improving, it is still not strong. The housing market is stuck in a downturn and gross domestic product data out this Friday should confirm that growth slowed in the third quarter. <\/p>\n
RBC also argues that bond yields that have risen more than 40 basis points over the past three months have already done some of the central bank\u2019s work in tightening financial conditions. <\/p>\n
Shenfeld said CIBC would \u201crespectively beg to differ\u201d with a rate hike if the central bank decides to go that way tomorrow. <\/p>\n
\u201cOur worry that this could be a policy error is tied to the fact that we aren\u2019t yet sure that ANY rate hikes will be warranted in the coming year, so moving early could be a step that the Bank comes to regret,\u201d he wrote. <\/p>\n
\u201cThe risks of waiting, in contrast, appear to be more limited.\u201d <\/p>\n
The weeks after the U.S. mid-term elections in November could resolve many of the uncertainties now facing the Canadian economy regarding energy inflation and trade relations, he said. <\/p>\n
The U.S. could reach a post-election deal with Iran that lowers oil prices. There is also a chance that trade tensions get worse, in which case the Canadian economy would need the support of lower interest rates. <\/p>\n
David Rosenberg , president of Rosenberg Research & Associates Inc., makes no bones about it. He finds it \u201castounding\u201d that markets are pricing in a rate hike Wednesday as a \u201cvirtual certainty\u201d and upping the odds of another move in December. <\/p>\n
Rosenberg argues that the Bank of Canada has no control over imported inflation from higher energy costs, and cautions that the economy could end \u201cup being the sacrificial lamb in this senseless fight against inflation that has zero to do with the state of domestic demand.\u201d <\/p>\n
\u201cBy piling on this cost shock with rate hikes, the recession that we did not get when we were supposed to back in 2021 and 2022 will emerge as a primary risk for 2027,\u201d he said. <\/p>\n
Six of the seven members of the C.D. Howe Institute\u2019s monetary policy council, which includes economists from Canada\u2019s largest banks, called for the Bank of Canada to hold it rate at 2.25 per cent tomorrow. <\/p>\n
\u201cMembers saw little evidence of broader price pressures and, from that perspective, found it difficult to make the case for a hike, which most did not,\u201d said the institute. <\/p>\n
Sign up here to get Posthaste delivered straight to your inbox.<\/strong><\/em> <\/p>\n Curious about what\u2019s been driving the Canadian dollar lately? <\/p>\n This chart by National Bank of Canada shows the forces whipsawing the loonie. After months in negative territory, the loonie\u2019s correlation with oil recently turned positive, said National Bank senior economist Kyle Dahms. But that influence remains weak compared with gold and two-year yield spreads. <\/p>\n Expectations of a Bank of Canada rate hike tomorrow and a Federal Reserve hold has helped reverse some of the currency\u2019s earlier losses, but its recovery is vulnerable to changes in rates and commodities, he said. <\/p>\n National Bank remains cautious on the Canadian dollar for the rest of this year. Appreciation will depend on the easing of trade tensions and narrowing of Canada\u2019s yield disadvantage. <\/p>\n A Montreal woman who is recently divorced with a young son wonders how she can save for retirement and her child\u2019s eduction. Her three-bedroom townhouse is fully paid off, she earns $145,000 annually and receives $550 monthly in child support. Find out what FP Answers recommends. <\/p>\n <\/span> Want to learn more about mortgages? Mortgage strategist Robert McLister\u2019s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won\u2019t want to miss. Plus check his mortgage rate page for Canada\u2019s lowest national mortgage rates, updated daily. <\/p>\n Visit the Financial Post\u2019s YouTube channel for interviews with Canada\u2019s leading experts in business, economics, housing, the energy sector and more. <\/p>\n Today\u2019s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.<\/em> <\/p>\n Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com . <\/p>\n
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\n Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country\u2019s most important sectors. Sign up here. <\/p>\n
\nAre you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at <\/span>wealth@postmedia.com<\/span> with your contact info and the gist of your problem and we\u2019ll find some experts to help you out while writing a Family Finance story about it (we\u2019ll keep your name out of it, of course).<\/span><\/div>\n
\nMcLister on mortgages<\/h2>\n
\nFinancial Post on YouTube<\/h2>\n
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