The Canadian economy GDP (gross domestic product) grew at an annualized rate of 3.1% in the first quarter of 2023, Statistics Canada reported, higher than the agency’s expectation of 2.5% growth, increasing speculation the Bank of Canada will hike its overnight rate by .25% June 7..StatCan said increased household spending and growth in exports offset slower inventory growth and lower machinery and equipment investment by businesses, contributed the most to the first quarter growth rate..It and the GDP increase, coupled with inflation rising to 4.4% in April from 4.3% in March, gives Governor of the Bank of Canada Tiff Macklem justification, based on his hard stance over the last year to tame inflation..There are indicators that could convince Macklem to hold the rate at 4.5% in June, with an eye on raising it in July, says Nathan Janzen, Asst. Chief Economist at RBC Economics..“There are still early signs that cracks are forming in the economic backdrop,” says RBC. “Job vacancies are declining, consumer delinquency rates are edging higher and households are saving less. And headwinds from higher interest rates will continue to build.”.“But the economy's resilience will put pressure on the bank to raise interest rates further. Governing council will actively discuss a hike next week, but we think they'll wait until July to see if more evidence accumulates in favour of a rate increase.”.Prior to the release of StatCan’s growth report, Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO Capital Markets, said the bank’s June 7 policy rate decision could hinge on the GDP report..Reites was expecting growth to be 2.5%, suggesting stronger than expected economic performance does not make a “sufficiently compelling” argument for further hikes..He said a key reason the bank will pause is the May employment data is not scheduled to be released until after June 7, adding with the employment data, the bank will have “notably more data in hand, with another two job reports and the consumer price index,” for the following interest rate announcement on July 12..Jean-Francois Perrault, senior vice-president and chief economist at Scotiabank, called for a rate increase before the GDP numbers were released, arguing the bank no longer has the luxury of taking a wait and see approach to inflation. In this environment, he considers an additional rate hike as insurance against inflation, reports BNN Bloomberg. .“We now think a 25 basis points move is required at the June meeting,” Perrault wrote in a note..Veronica Clark, an economist from Citigroup, told Bloomberg the bank should increase its rate at the next meeting..“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 that you’ve done enough," said Clark on Tuesday, adding she also expects a .25% hike at the bank’s meeting in July..In the bank’s first-quarter Market Participants Survey, which polled 30 financial market participants between March 9 and 23, a median of responders expected it will maintain its rate at 4.5% for the remainder of 2023 before it begins to cut rates in 2024. Most expect rates to fall to 3.5% by the second quarter, and continue to fall to 3% by year-end. Expectations for the benchmark rate at the end of 2024 range from 2.5% to 3.5%.
The Canadian economy GDP (gross domestic product) grew at an annualized rate of 3.1% in the first quarter of 2023, Statistics Canada reported, higher than the agency’s expectation of 2.5% growth, increasing speculation the Bank of Canada will hike its overnight rate by .25% June 7..StatCan said increased household spending and growth in exports offset slower inventory growth and lower machinery and equipment investment by businesses, contributed the most to the first quarter growth rate..It and the GDP increase, coupled with inflation rising to 4.4% in April from 4.3% in March, gives Governor of the Bank of Canada Tiff Macklem justification, based on his hard stance over the last year to tame inflation..There are indicators that could convince Macklem to hold the rate at 4.5% in June, with an eye on raising it in July, says Nathan Janzen, Asst. Chief Economist at RBC Economics..“There are still early signs that cracks are forming in the economic backdrop,” says RBC. “Job vacancies are declining, consumer delinquency rates are edging higher and households are saving less. And headwinds from higher interest rates will continue to build.”.“But the economy's resilience will put pressure on the bank to raise interest rates further. Governing council will actively discuss a hike next week, but we think they'll wait until July to see if more evidence accumulates in favour of a rate increase.”.Prior to the release of StatCan’s growth report, Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO Capital Markets, said the bank’s June 7 policy rate decision could hinge on the GDP report..Reites was expecting growth to be 2.5%, suggesting stronger than expected economic performance does not make a “sufficiently compelling” argument for further hikes..He said a key reason the bank will pause is the May employment data is not scheduled to be released until after June 7, adding with the employment data, the bank will have “notably more data in hand, with another two job reports and the consumer price index,” for the following interest rate announcement on July 12..Jean-Francois Perrault, senior vice-president and chief economist at Scotiabank, called for a rate increase before the GDP numbers were released, arguing the bank no longer has the luxury of taking a wait and see approach to inflation. In this environment, he considers an additional rate hike as insurance against inflation, reports BNN Bloomberg. .“We now think a 25 basis points move is required at the June meeting,” Perrault wrote in a note..Veronica Clark, an economist from Citigroup, told Bloomberg the bank should increase its rate at the next meeting..“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 that you’ve done enough," said Clark on Tuesday, adding she also expects a .25% hike at the bank’s meeting in July..In the bank’s first-quarter Market Participants Survey, which polled 30 financial market participants between March 9 and 23, a median of responders expected it will maintain its rate at 4.5% for the remainder of 2023 before it begins to cut rates in 2024. Most expect rates to fall to 3.5% by the second quarter, and continue to fall to 3% by year-end. Expectations for the benchmark rate at the end of 2024 range from 2.5% to 3.5%.
