BoC rate hold to pave the way for full economic recovery – analysts

The central bank’s approach will aim to stimulate growth for the next few quarters, market observers say

BoC rate hold to pave the way for full economic recovery – analysts

The Bank of Canada is likely to let inflation run hotter for longer and keep the benchmark overnight rate at 0.25% for the foreseeable future to stimulate growth, according to market observers.

These predictions came in the wake of Canadian inflation rate reaching an 18-year high in August, with a 4.1% annual gain in the consumer price index, per Statistics Canada data.

Millan Mulraine, chief economist of the Ontario Teachers’ Pension Plan, said that a prolonged rate hold well into 2023 could pave the way for full economic recovery.

“They want to go later. They want to ensure the self-sustaining recovery takes shape and that the output gap closes,” Mulraine said during the Bloomberg Canadian Fixed Income Conference earlier this week. “They will go on or just after the output gap closes.”

Read more: BoC’s Macklem outlines the bank’s inflation strategy

In a separate statement, Tony Stillo, director of Canada economics at Oxford Economics, said that the rate hold will stem from the prevailing economic environment, which exhibited “weaker than previously thought” momentum going into the third quarter.

“While we still expect a sustained reopening of the economy will lead to stronger growth in [the second half of 2021] and a gradual easing of transient higher inflation, uncertainty and downside risk from the spread of the Delta variant and persistent supply disruptions will keep rate hikes on hold,” Stillo said.

Brett House, deputy chief economist at Scotiabank, predicted that a hike will come earlier than expected.

 “A combination of inflationary pressures and closing output gaps should prompt a rate move by the BoC in the second half of 2022,” House said.