Will the Bank of Canada raise interest rates a third time in 2017?

The Bank of Canada’s last rate announcement surprised the majority of Canada’s top economists, many of whom had called for a hike in October. Now, with the economy continuing to grow, many are wondering if the BoC will hike one more time before the year ends.

Each new GDP or jobs report that comes in stronger than expected builds the case for higher interest rates. And higher interest rates have had an immediate impact on how people are shopping for mortgages. The BoC makes its next interest rate announcement on October 25 and the question on everyone’s mind is: will there be another rate hike in the next few months?

Here’s what economists are saying

After being surprised by September’s rate hike, the BMO Capital Markets team updated its forecast, predicting that by the end of 2018, the benchmark rate will be as high as 2% (the previous forecast was 1.5%). The last time the key interest rate was at 2% was in 2009.

In its forecast report, the BMO team writes, “We suspect that the bank will likely take a brief pause to gauge the impact of the rate hikes, but the upbeat view on growth points to more tightening than we previously expected through next year. At this point, we would look for 100 bps of hikes by the end of 2018.”

It doesn’t seem as though BMO is expecting another rate hike in 2017, but is leaving the door open to one happening in the near future.

CIBC’s Avery Shenfeld doubts there will be additional hikes in 2017. In a weekly update, he explains why the BoC won’t touch the key rate sometime soon.

“If the bank continues on the path markets have now priced in, with a further solo rate hike this year before a matching move from the Fed, it risks having too much tightening on the trade sector, where it hopes to see growth to offset a cooling housing and consumer climate. It also will knock the coming year’s CPI as imports get cheaper.”

RBC, on the other hand, is calling for at least one more rate hike in 2017. “Despite below-target inflation, we think the central bank will continue raising rates in Q4 in anticipation that CPI will eventually pick up.”

The verdict?

The majority of economists aren’t expecting another hike this year.

It’s unusual for the Bank of Canada to hike three meetings in a row, but it has happened multiple times in the past.

It’s hard to say exactly what the bank will do, but with a strong economy and continuing job growth, there’s a bias to opt for hikes, rather than holding. The bank’s primary goal right now is to make sure the Canadian economy keeps heading in the right direction.

Pay attention to the economic numbers in the coming months. Another blockbuster jobs report or GDP report could add justification for a third rate hike this year. Either way, it’s important for Canadians with debt loads right now to really assess whether they need to refinance or pay down debt quicker.