Canada's blowout economic growth of 5 per cent in the fourth quarter raised a big question on Monday: What does it mean for interest rates?
The Bank of Canada has said repeatedly that its ultra-low key overnight rate of 0.25 per cent wouldn't be touched until at least the end of the second quarter of this year. But with economic growth far exceeding the central bank's 3.3 per cent expectation, you have to wonder whether the Bank is getting ready to raise rates perhaps sooner than some observers had been expecting.
While no one expects the bank to raise its rate when it releases its monetary policy report on Tuesday, there could be some shifts in the wording of its statement. Here are a few thoughts from economists on what to expect.
Peter Buchanan, senior economist, CIBC World Markets: "While the Bank is unlikely to change direction before its conditional commitment lapses early in the third quarter, the strength in today's headline and toasty gain in housing activity make it likely that the Bank will begin to retighten shortly thereafter, probably at its July policy meeting."
Yanick Desnoyers, assistant chief economist, National Bank Financial: "This morning's all-around strong report sets the stage for some modifications in the Bank of Canada's press release meeting on Tuesday."
Millan Mulraine, economics strategist at TD Securities: "In terms of monetary policy...we continue to expect the Bank to keep rates unchanged until the fourth quarter, though the accelerated pace of economic activity and the current elevated level of core inflation may present some risks that the Bank of Canada could go sooner. Nonetheless, we do not expect this report to impact tomorrow's decision."
Douglas Porter, deputy chief economist, BMO Nesbitt Burns: "Between the structure of the strong fourth quarter advance (no help from inventories) and the robust monthly results, this report shouts strength, and increases the odds the Bank of Canada will begin to hike interest rates in July and stay on that path in the following decisions."