The Bank of Canada is expected to start a series of interest rate hikes this week to wrestle inflation down from a three-decade high.
All 27 economists surveyed by Bloomberg News anticipate Governor Tiff Macklem will raise the benchmark interest rate by a quarter percentage point to 0.5 per cent at a policy decision Wednesday. The Bank of Canada is also seen unveiling part of its plan to shrink holdings of government bonds acquired over the past two years.
Tiff Macklem speaks during an Ottawa news conference in May 2020. (Bloomberg News)
The rate move would be the first increase in borrowing costs since 2018, starting what’s expected to be one of the fastest hiking cycles since the central bank adopted an inflation target three decades ago. Markets expect a total of six hikes over the next 12 months. Russia’s invasion of Ukraine is unlikely to deter the Bank of Canada, with surging prices for commodities buffering Canada from any broader global economic fallout.
“A hike this week will be the first step in the most consequential tightening cycle in decades,” Royce Mendes, head of macro strategy at Desjardins Securities Inc., said by email. “Central bankers need to slow red hot inflation without causing a recession.”
Wednesday’s decision at 10 a.m. in Ottawa is a statement-only affair with no new forecasts. But Macklem will give a speech and hold a news conference Thursday, where he’ll provide more insight into the decision.
The Bank of Canada, which has held its benchmark at the emergency level of 0.25 per cent since March 2020, has already begun laying the groundwork. At its last policy decision in January, Macklem warned higher borrowing costs are imminent in an economy at full capacity and no longer in need of extraordinary stimulus.
The central bank has also sought to reassure Canadians that despite a relatively optimistic outlook for inflation, officials are prepared to adjust quickly should price pressures prove to be stickier than forecast. Inflation is currently running at a three-decade high of 5.1 per cent, but officials continue to blame global supply chain issues that they anticipate will fade in coming months.
In its latest projections, the Bank of Canada sees inflation falling back to about 3 per cent by the end of this year and near its 2 per cent target in 2023.
“We will be nimble — and if necessary, forceful — in using our monetary policy tools to address whatever situation arises,” Deputy Governor Tim Lane said in a Feb. 16 speech.
What Bloomberg Economics Says…
“We expect a 25-bp hike, in our view — but express a willingness to ratchet up the pace if needed. A clear signal of another move in April is likely, as is language that flags balance sheet roll-off is imminent. Conflict between Russia and Ukraine is unlikely to shake the BoC’s resolve to start normalizing rates.”
–Andrew Husby, economist
There are risks to consider as lending costs rise, and the process will be a delicate balancing act. Canadian households are some of the most indebted among advanced nations. Housing is primary growth driver, a sector likely to cool as the cost of borrowing increases.
Markets are betting the Bank of Canada’s overnight policy rate will hit 1 per cent by June, and 1.75 per cent by this time next year. Banks use that benchmark to price borrowing costs for clients on variable-rate mortgages.
The Bank of Canada building at the intersection of Bank and Wellington streets in Ottawa is seen. (Bloomberg News)
“Once the policy rate rises above 1 per cent, financial stability considerations will come to the fore,” Simon Harvey, head of foreign exchange analysis at Monex Europe Ltd., said by email.
The invasion of Ukraine and resulting global market turmoil are complicating the decision.
Even as it prepares to withdraw stimulus, the central bank will be ready to quickly pivot on policy and inject liquidity into financial markets should investors become even more rattled. Surging commodity prices, meanwhile, will only fuel inflationary pressure, and drive up incomes and demand in Canada’s resource-based economy. It’s a messy policy environment.
Macklem told lawmakers last month he’ll be deliberate and clear on rate hikes so that “monetary policy is a source of confidence rather than another source of uncertainty.” That in itself would have made a half percentage point increase this week unlikely. The events in Ukraine effectively rule out that possibility altogether.
In an interview with the Globe and Mail in January, Macklem said one option would be to start with a few rate hikes followed by a pause to “assess the situation” before moving again.
The Bank of Canada can also withdraw stimulus by allowing its bond holdings to run off rather than raising its policy rate — giving it some flexibility on the pace of hikes. The central bank has seen its holdings of federal government bonds rise by about $350 billion (US$275 billion) during the pandemic, and is expected to provide direction on Wednesday on its plans to unload those assets.
“The Bank of Canada will likely provide more guidance this week on how quantitative tightening will work,” Citigroup Global Markets Inc. economist Veronica Clark said by email. “That includes whether they end the full amount of reinvestments initially, or ramp up gradually.”
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.
