Some economists think Wednesday’s interest rate hike could be the last for a while
Second-quarter GDP grew compared with the first three months of the year, though that slowed toward the end of the period and a preliminary estimate suggests a contraction in July. Meanwhile, the unemployment rate is holding at a historic low.
Some of Canada’s major banks are forecasting the central bank will the key interest rate by three-quarters of a percentage point, bringing it to 3.25 per cent. Higher interest rates feed into higher lending rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank is hoping that by making the cost of debt more expensive, spending in the economy will slow and inflation will cool.
That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where interest rate hikes bring inflation down without triggering a recession. Some of his recommendations include changing mortgage underwriting rules for investors to cool housing prices and expanding the new excess corporate profits tax beyond financial institutions.
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