Bank of Canada between ‘a rock and hard place’ ahead of rate decision: strategist

Ahead of the Bank of Canada’s subsequent rate of interest determination, one chief market strategist stated he expects the central financial institution to carry charges whereas acknowledging present dangers within the economic system.

Canada’s central financial institution is ready to announce its subsequent coverage charge determination on Wednesday. Karl Schamotta, a chief market strategist at Corpay, stated in an interview with BNN Bloomberg Monday, that he thinks the Bank of Canada will acknowledge draw back financial dangers stemming from volatility within the U.S. banking sector.

“I don’t think anyone on the Street is expecting a hike or really any adjustment here. We are expecting a hold but also a relatively hawkish bias in the accompanying statement,” Schamotta, stated.

Schamotta stated he additionally expects the central financial institution to additionally acknowledge “signs of resilience in the economy,” which he stated has grown extra quickly than projections from the Bank of Canada. He stated positive factors in employment have spurred will increase in mixture spending.

“The Bank of Canada is, unfortunately to a very large degree, sort of pinned between a rock and a hard place at this point. They can’t respond to the data by cutting rates, but at the same time, they can’t continue hiking because they are aware that there are huge downside risks ahead for the Canadian economy,” Schamotta stated.

Schamotta stated he expects a future decline in shopper spending, which is more likely to weigh on the Canadian economic system and convey about detrimental development. He stated that following outsized will increase to rates of interest, Canadian shoppers will possible curtail spending as they take care of larger debt hundreds.

Canada’s central financial institution elevated rates of interest eight instances final 12 months, earlier than electing to carry its coverage charge at 4.5 per cent in March.

An financial downturn just isn’t more likely to flip right into a “precipitous slide” given the energy within the labour market and sturdy world demand, stated Schamotta.

“At the end of the day, it’s shocking that the Canadian economy has not slowed more dramatically than it has [and] that employment is as robust as it is,” he stated.

“It really seems to me that the lagging impact of last year’s tightening cycle should be hitting home, that consumers should be shifting spending patterns, but we’re just not seeing it yet.”

Schamotta stated he expects shoppers to start shifting their spending patterns within the “coming months.”

Additionally, he stated he doesn’t anticipate a charge lower from any main central financial institution this 12 months.