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Bank rate hikes ahead

April 26, 2018

The Canadian dollar fell sharply immediately after the April 18 release of the Bank of Canada's official statement providing a more bullish forecast for the economy while holding lending rates steady.
The central bank hiked its estimate of potential growth, suggesting the economy will expand by 1.8 per cent this year and accelerate to 1.9 per cent in 2020. Formerly, the Bank had estimated potential growth to average about 1.6 per cent for the next two years.
The central bank now sees first-quarter growth at 1.3 per cent, down from a January forecast of 2.5 per cent.
“Slower growth in the first quarter primarily reflected weakness in two areas. Housing markets slowed in the wake of the new mortgage guidelines. Exports also slowed, in part owing to transportation bottlenecks,” noted Sherry Cooper, chief economist at Dominion Securities.
“The [first-quarter] contraction was amplified as some homebuyers acted quickly in the fourth quarter of 2017 to purchase a home before being subject to the new mortgage measure. In the second quarter of 2018, housing activity is expected to pick up as resales start to recover,” Cooper said.
But she also expects to see higher lending rates this year. “I expect two more quarter-point rate hikes this year likely in the summer and fall,” Cooper said.
CIBC economist Andrew Grantham also expects another Bank of Canada rate hike this July.


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