Rate hikes just beyond the horizon – former BoC adviser

Supply and inflationary pressures are not likely to go away anytime soon....

The Bank of Canada will have to consider raising interest rates within the next few months, as supply and inflationary pressures will likely prevail for the foreseeable future, according to a former adviser to the central bank.

“The bank thinks that there’s a lot of capacity, which I don’t think there really is, and the facts on the ground of rising prices show that,” said David Wolf, portfolio manager at Fidelity Investments.

Speaking at the Bloomberg Canadian Fixed Income Conference, Wolf said that any upward movements in the BoC’s benchmark interest will have to take place in the first half of 2022.

“The consequences, I think, are pretty straightforward from a market point of view. The short end backs off, curve flattens, Canadian dollar goes up – and certain businesses in Canada may have a harder time because of the effects of the tightening,” Wolf said.

A previous forecast by Royal Bank of Canada projected rate hikes to begin at around the same period next year, impelled by mass vaccinations, steady economic recovery, and substantial consumer liquidity.

“When you look at input prices – commodities, labour, goods and services – we see inflationary pressure building earlier than later,” said David McKay, CEO of RBC.

MBN

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