Sustained economic strength will herald further BoC rate hikes

Sustained economic strength will herald further BoC rate hikes

Sustained economic strength will herald further BoC rate hikes

Canada’s steady trend of economic strength might justify even further hikes in the BoC’s interest rates, according to observers.

The latest set of economic numbers “simply reinforces the likelihood of an October Bank of Canada rate hike, and keeps a firm foundation on further moves in 2019,” Bank of Montreal chief economist Doug Porter wrote in an investor note, as quoted by Bloomberg.

Economists polled by the publication are predicting the annualized Q3 growth to sit at 2.1%, following the second quarter’s 2.9% pace. Meanwhile, national growth is expected to be at 2.4% during the final quarter of the year.

Among the latest highlights include an unexpected, but very much welcome, $526 million trade surplus in August, which was Canada’s first since December 2016. This was spurred by a recent recovery in the export segment.

Statistics Canada figures also showed that the national labor market saw 63,300 new jobs last month, on top of what is the strongest quarter for employment gains so far this year. Joblessness shrunk a bit from 6% in August to 5.9% in September, reaching a near 4-decade low.

Read more: Interest rate could hit 6% by 2020

“We expect a hike at the Bank of Canada’s meeting later this month, with a decent (and more balanced) growth backdrop arguing for less monetary policy accommodation,” Royal Bank of Canada senior economist Josh Nye stated.

However, Nye added that such a move might be the BoC’s last for 2018.

“Until we see evidence of wages and inflation responding more significantly to capacity constraints, the Bank of Canada has little reason to speed up the pace of tightening,” he explained.