The Bank of Canada is likely to hike its benchmark interest rate another half a percentage point on June 1, further raising the cost of borrowing to tackle “persistent” inflation levels not seen in 30 years, economists predict.
Economists who spoke to Global News all said they expect the central bank’s key interest rate to rise to 1.5 per cent on Wednesday.
Money markets are also pricing in a hike of 50 basis points, economists confirmed.
Such a move would make the second consecutive jump of 50 basis points from the central bank. The last time it raised rates half a percentage point in back-to-back decisions was nearly 25 years ago, in December 1997 and January 1998.
2:01 Sticker Shock: Coping with the rising cost of inflation in Canada
Sticker Shock: Coping with the rising cost of inflation in Canada – May 12, 2022
Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, told Global News that the hike is expected due to inflation figures remaining high through the first half of 2022.
The 6.8 per cent inflation rate recorded last month was well above the Bank of Canada’s inflation forecast released at the start of April, which pegged year-over-year price growth around six per cent in the second quarter of the year.
Gas prices are among the areas expected to keep climbing in May, he noted, giving the Bank of Canada plenty of cause for concern in efforts to tamp down on the surging cost of living.
“Inflation is still the main story here. The Bank of Canada wants to push back on inflation and they do that by raising rates,” he said.
Inflation is beating initial expectations in part because of the prolonged war in Ukraine, according to TD Bank senior economist James Orlando.
Early in the conflict, economists had expected a “temporary spike” in prices due to gas and food supply chain constraints, but impacts three months into the war are “broader” and “much more persistent than previously thought,” Orlando explained. COVID-19 lockdowns in China contributing to global supply chain issues are among other factors.
Other central banks are also in a rate hike cycle, with the U.S. Federal Reserve also taking a half-percentage-point step in early May.
7:17 US Federal Reserve raises interest rates by 0.5% to slow inflation
US Federal Reserve raises interest rates by 0.5% to slow inflation – May 4, 2022
Is a 75 bps hike in the cards?
Though the consensus for Wednesday’s decision is gathering around the 50-basis-point mark, economists who spoke to Global News said a more aggressive increase of 75 basis points is not out of the question.
Tu Nguyen, economist with RSM Canada, said that while back in January the idea of such a jump would have been inconceivable, today it’s “certainly possible.”
Nguyen thinks the 75-basis-point move is unlikely, however, to avoid the risk of a more steep economic decline.
“I think the bank would stick with the 50-basis-point hike. They don’t want to scare the economy too much,” she said.
Reitzes agreed, saying a 75-basis-point increase would be a “more extreme move” that wouldn’t be in line with the central bank’s messaging on interest rates to date.
While the Bank of Canada is keen to take steam out of the country’s roaring economy, two rate hikes at the start of the year have already had a cooling effect on sectors such as the housing market, where home sales are slowing and prices are showing declines in some cities.
Orlando said the real estate market has “done a 180” from just a few months back when buyers were rushing to get in before prices rose, to today when Canadians are sitting on the sidelines seeing how low prices could go.
2:07 Sticker Shock: Canada’s housing inflation keeping prospective buyers on the sidelines
Sticker Shock: Canada’s housing inflation keeping prospective buyers on the sidelines
When will rate hikes stop?
The current benchmark rate of one per cent is still stimulating the economy, Orlando noted, and the central bank itself said earlier this year that rates need to rise to the two-to-three per cent range before the bank’s monetary policy would truly be taking its foot off the gas.
He predicts another 50-basis-point increase in July to bring the bank’s rate to two per cent, with another hike likely in September.
Reitzes predicted the same and said the bank will likely take stock of the impact of rising rates on inflation and the economy in the fall.
Nguyen also expects the Bank of Canada will continue to raise rates through September as the bank has some “wiggle room” to increase its rate without seriously risking a recession in Canada’s “overheated economy.”
The Bank of Canada will use that runway to raise rates as it looks to maintain its “credibility” as an inflation-fighting central bank, Orlando said.
If it does not use its primary policy tool to push back on inflation, expectations of perpetual price growth could seep into the minds of consumers and businesses. If sentiment shifts and inflation is expected long term, workers will push for higher wages and businesses will plan to pass those elevated costs on to consumers, forming an endless cycle of inflation.
“If people believe that the Bank of Canada is going to be successful in reining in inflation in the future … it enables the Bank of Canada to be more effective at doing that job,” Orlando said.
The latest consumer and business outlook surveys from the Bank of Canada in early April showed that while inflation expectations remain high in the short term, Canadians remain confident pressures will ease in the longer term.
“The good news is that belief is still out there that this is going to be something that will eventually be reined in,” Orlando said.
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
