Two more leading economists joined the debate about the Bank of Canada’s June 7 rate announcement, suggesting the bank will not hesitate to raise the rate..Jean-François Perrault, chief economist and senior vice-president at Scotiabank, told BNN Bloomberg an increase might actually be necessary, taking into account current market conditions..The labour market remains strong, which means spending is unlikely to decline in the near future, housing markets are showing signs the bottoming out was reached by March, but the trigger might be the fact inflation increased unexpectedly to 4.4% in April, up from 4.3% in March..Perrault said April’s inflation was still considerably higher than the 3% level the bank is expecting to be reached by mid-2023..“The risk of not doing enough, effectively implies that inflation doesn’t come down as much as we want, and that at the end of the day you might need to do even more on the rate side later on to bring inflation down,” Perrault said. “Twenty-five basis points doesn’t make a huge difference in anybody’s pockets, but it helps solidify the Bank of Canada’s message.”.Veronica Clark of Citigroup Inc. also called for a similar rate hike, pointing out April’s inflation figure justifies the increase..“The Bank of Canada is literally saying we’re waiting to see if we’ve done enough, and none of the data is telling you you’ve done enough,” Clark said in an interview with Bloomberg..“It’s been hard for markets to imagine another hike in Canada, but the Bank of Canada is first and foremost an inflation-targeting central bank, and inflation looks sticky, strong and much higher than 2%.”.Clark and Perrault join Perault’s colleague at Scotiabank, Derek Holt, who last week said don’t be surprised if the bank returns to aggressive hikes..“(The bank) couldn’t care less about what markets and the street expect and I swear they wear that as a bit of a mischievous badge of honour,” wrote Holt in a note to clients. “Even if they do think they need to set it up then they can easily point to everything they said in the April statement, ‘Governing council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target.’".Speaking to the Toronto Region Board of Trade, the bank’s governor, Tim Macklem, said if global banking and financial conditions show signs of turmoil, the bank would have to reassess its position of holding the rate and consider bumping it up..“If financial stress were to lead to more tightening than expected and if this were to persist, we would need to take this into consideration as we set the policy rate to achieve our inflation target,” said Macklem..At the bank’s April announcement, Macklem said the bank was “prepared to raise the policy rate further” to return inflation to its 2% target if current monetary policy proved too loose..After that announcement, Josh Nye, senior economist at RBC, told Canadian Mortgage Professional that Macklem dampened any speculation about a rate cut this year..Nye said Macklem was trying to remind folks the bank has a tightening bias so, in their view, the next move is probably more likely to be a hike..Holt wrote bank governor Tim Macklem could say in June, “I told you I'd hike if we're surprised. And my, what a surprise (inflation) and housing have been to them!”.“If the (bank) doesn’t adopt the crush it, killer mentality, then it may never succeed in getting inflation down to 2%,” said Holt..“A pledge to hang out high for longer doesn’t address this problem and nobody would believe it anyway given a heavy discount attached to forecast credibility the further out in time we go.”
Two more leading economists joined the debate about the Bank of Canada’s June 7 rate announcement, suggesting the bank will not hesitate to raise the rate..Jean-François Perrault, chief economist and senior vice-president at Scotiabank, told BNN Bloomberg an increase might actually be necessary, taking into account current market conditions..The labour market remains strong, which means spending is unlikely to decline in the near future, housing markets are showing signs the bottoming out was reached by March, but the trigger might be the fact inflation increased unexpectedly to 4.4% in April, up from 4.3% in March..Perrault said April’s inflation was still considerably higher than the 3% level the bank is expecting to be reached by mid-2023..“The risk of not doing enough, effectively implies that inflation doesn’t come down as much as we want, and that at the end of the day you might need to do even more on the rate side later on to bring inflation down,” Perrault said. “Twenty-five basis points doesn’t make a huge difference in anybody’s pockets, but it helps solidify the Bank of Canada’s message.”.Veronica Clark of Citigroup Inc. also called for a similar rate hike, pointing out April’s inflation figure justifies the increase..“The Bank of Canada is literally saying we’re waiting to see if we’ve done enough, and none of the data is telling you you’ve done enough,” Clark said in an interview with Bloomberg..“It’s been hard for markets to imagine another hike in Canada, but the Bank of Canada is first and foremost an inflation-targeting central bank, and inflation looks sticky, strong and much higher than 2%.”.Clark and Perrault join Perault’s colleague at Scotiabank, Derek Holt, who last week said don’t be surprised if the bank returns to aggressive hikes..“(The bank) couldn’t care less about what markets and the street expect and I swear they wear that as a bit of a mischievous badge of honour,” wrote Holt in a note to clients. “Even if they do think they need to set it up then they can easily point to everything they said in the April statement, ‘Governing council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target.’".Speaking to the Toronto Region Board of Trade, the bank’s governor, Tim Macklem, said if global banking and financial conditions show signs of turmoil, the bank would have to reassess its position of holding the rate and consider bumping it up..“If financial stress were to lead to more tightening than expected and if this were to persist, we would need to take this into consideration as we set the policy rate to achieve our inflation target,” said Macklem..At the bank’s April announcement, Macklem said the bank was “prepared to raise the policy rate further” to return inflation to its 2% target if current monetary policy proved too loose..After that announcement, Josh Nye, senior economist at RBC, told Canadian Mortgage Professional that Macklem dampened any speculation about a rate cut this year..Nye said Macklem was trying to remind folks the bank has a tightening bias so, in their view, the next move is probably more likely to be a hike..Holt wrote bank governor Tim Macklem could say in June, “I told you I'd hike if we're surprised. And my, what a surprise (inflation) and housing have been to them!”.“If the (bank) doesn’t adopt the crush it, killer mentality, then it may never succeed in getting inflation down to 2%,” said Holt..“A pledge to hang out high for longer doesn’t address this problem and nobody would believe it anyway given a heavy discount attached to forecast credibility the further out in time we go.”
