Case for BoC rate hike crumbling as trade war ramps up
But while he doesn’t expect the Canadian economy to take a huge hit from the latest round of US tariffs – which impact a swathe of Canadian products including alcohol, dairy goods, and wood and paper – Servus Credit Union chief economist Charles St-Arnaud (pictured top) said odds of a hike are rapidly falling.
“What [the trade war] really creates is that the probability of a hike… is very low, until probably spring next year,” he told Canadian Mortgage Professional. “And if there’s something like a new development, a new negotiation, and we get to an agreement that is actually beneficial for Canadians, I don’t see the Bank of Canada moving toward hiking interest rates.”
Economic concern outstrips inflation worries
Those inflation concerns haven’t vanished. The Iran war is rumbling on with no sign of a resolution, meaning upward pressure on oil prices is likely to continue, and tariffs and counter-tariffs usually pass higher goods costs on to the end consumer.
St-Arnaud, though, said the threat to the economy posed by the latest trade crisis will probably outweigh those fears, even if it also probably won’t spur the central bank into rate cuts.
“There’s always a concern about higher inflation coming from higher gasoline prices and energy prices, but we’re not seeing yet that second-round effect coming,” he said. “But I think the likelihood of hiking has been reduced significantly.
