Another interest rate hike likely in October: BMO

Bank forecasts one overnight rate increase in the fall and a further two in 2019

Following a 0.25-percentage-point hike to the Bank of Canada’s overnight rate in July, economists at BMO are calling for another in October – or possibly September, if upcoming economic data is strong.

BMO said in a report published this week, “While uncertainty continues to cloud the outlook for the Canadian economy, a near-month-long run of solid data has another hike priced in by October (consistent with our call), with some even calling for a September hike… We’re not entirely ruling out a September hike at this point, but it would take a very strong run of data over the next month. Keys to watch are the July jobs report, Governor Poloz’s speech on August 25, and Q2 GDP on August 30.”

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The report backs recent predictions by RBC Economics, which also forecast a rate hike in October.

BMO chief economist Douglas Porter said in a recent note that the rise in interest rates is starting to affect Canada’s housing market.

“There are growing signs that past rate moves are starting to bite,” he wrote. “The early return for July home sales suggests that activity is still moderating in much of the country from the 1-2 hit of rising mortgage rates and a tighter regulatory backdrop.”

The bank also predicted more interest rate hikes in 2019. Its August 7 report added, “We expect two rate hikes next year and for the Bank [of Canada] to only hit the bottom of its 2.5-per-cent-to-3.5-per-cent estimated neutral range in 2020.”

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