Will the Bank of Canada raise interest rates next week? More investors say yes – National

Canadian restrictions to combat COVID-19 will likely come at the cost of slower economic growth at the start of the year than in the United States, but that hasn’t stopped investors from betting that the Bank of Canada will raise interest rates next week.

With hospital capacity stretched, Canadian provincial governments have implemented stricter restrictions than in the United States and many other countries to slow the spread of the Omicron variant of the coronavirus.

As a result, economists at some of Canada’s major banks are expecting weak or no GDP growth in Canada in the first quarter compared to estimates of around 4% to 5% before the emergence of
the variant.

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“I see a lot more risk for the Canadian numbers than for the US numbers, just because we see a lot more restrictions in Canada,” said Doug Porter, chief economist at BMO Capital Markets.

But economists also say activity should rebound quickly when restrictions are lifted.

Investors seem to be counting on it. Monday’s money market data showed the odds of the Bank of Canada announcing a rate hike on Jan. 26 rose to nearly 70% after a central bank survey of businesses highlighted pressures higher salaries.

It would be an earlier decision than that announced by the Canadian central bank and a quicker takeoff than in the United States, where the Federal Reserve is not expected to raise rates until March.

The BoC will provide for the first time next week its estimate of economic growth for the current quarter.

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“We think the Bank of Canada will revise down its forecast for the first quarter in January, as we just did, but in terms of the impact (of the closures) on inflation, it is not so clear. “said Josh Nye, senior economist at Royal Bank. from Canada.

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“You may have a bit of disinflationary pressure in some of the service sectors that are going to be hit the hardest by this, but when you have people who are not able to work, it has an impact on supply. .”

The Canadian healthcare system is expected to be further strained by an increase in cases of the new variant in the coming weeks.

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When it comes to hospital and clinic capacity, only Italy was ranked lower than Canada among G7 countries in the 2021 Global Health Security Index.

Ontario, Canada’s most populous province, has temporarily moved schools to remote learning and closed indoor dining, among other measures, while neighboring Quebec has banned private gatherings and imposed a blackout. – night fire in the province to fight against Omicron.

Still, the Canadian economy has the potential to outpace that of the United States throughout the year, as Canadian activity has been further dampened by previous waves of the pandemic as well as drought and chip shortages that have slowed automotive production in 2021.

The Canadian economy is expected to just recover to its pre-pandemic peak in the fourth quarter of last year, two quarters later than the United States.

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“There’s plenty of room for Canada to catch up,” Porter said, forecasting 4% growth in 2022.

“We suspect that after weathering the first quarter mess in Canada, we will outperform the United States for the rest of the year.”

(Report by Fergal Smith edited by Paul Simao)

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