Bank of Canada between ‘a rock and hard place’ ahead of rate decision
Ahead of the Bank of Canada’s next interest rate decision, one chief market strategist said he expects the central bank to hold rates while acknowledging current risks in the economy.
Canada’s central bank is set to announce its next policy rate decision on Wednesday. Karl Schamotta, a chief market strategist at Corpay, said in an interview with BNN Bloomberg Monday, that he thinks the Bank of Canada will acknowledge downside economic risks stemming from volatility in the U.S. banking sector.
Schamotta said he also expects the central bank to also recognize “signs of resilience in the economy,” which he said has grown more rapidly than projections from the Bank of Canada. He said gains in employment have spurred increases in aggregate 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 said.
Schamotta said he expects a future decline in consumer spending, which is likely to weigh on the Canadian economy and bring about negative growth. He said that following outsized increases to interest rates, Canadian consumers will likely curtail spending as they deal with higher debt loads.
Canada’s central bank increased interest rates eight times last year, before electing to hold its policy rate at 4.5 per cent in March.