Brace yourselves, Canada: Another Interest Rate Hike is Coming – Posthaste

Canadians Should Prepare for Hike in Interest Rates this Week or Next Month

Introduction

There are speculations among the market and economists that the Bank of Canada will raise interest rates this week or next month. The central bank of Canada had earlier taken a pause on raising interest rates once it rose from near zero to 4.5% so that it could assess its impact on the Canadian economy.

Impact of Interest Rates on the Economy

The primary purpose of hiking interest rates is to act as brakes on the economy to reduce inflation. However, the Canadian economy has shown immense resilience, with the GDP of the first quarter increasing to 3.1% annualized, beating the forecasted 2.3% by the Bank of Canada.

Surprising Inflation Numbers

In April, the inflation numbers also surpassed the forecasted figures, indicating an increase of 4.4% from the previous year instead of the forecasted 4.1%. Capital Economics suggested that rising home prices could still complicate matters since Canada‘s housing market is also hotting up again.

Rate Hikes: Timing and Quantity

Several economists believe that the Bank would rather keep its powder dry this week before considering hiking in July. The market estimates that the probability of a rate hike on June 7 was just 38 percent last week. Capital Economics’ Stephen Brown is however, more optimistic, and predicts a hike this Wednesday and another one in July.

Conclusion

In summary, interest rates in Canada are expected to rise either this week or in July, based on speculations from the market and different Canadian economists. The federal government has to brace itself for tougher economic measures as inflation rates and other economic indices continue to grow and exceed expectations.