A 25 bps rate hike by the Bank of Canada would be simple risk management: Scotia's chief economist
A Bank of Nova Scotia economist who announced last week his call for an additional rate hike from the Bank of Canada says that it is needed in order for the central bank to reinforce its mandate to Canadians.
Jean-François Perrault, senior vice-president and chief economist at Scotiabank, says that while raising rates a fourth of a per cent in June could pose its own risks to the Canadian economy, it is necessary for the bank to demonstrate to Canadians that is sticking to this fight.
“The risk of not doing enough, effectively implies that inflation doesn’t come down as much as we want, and that at the end of the day, you might need to do even more on the rate side later on to bring inflation down," he said.
“Twenty-five basis points doesn’t make a huge difference in anybody’s pockets, but it helps solidify the Bank of Canada’s message.”
The bank has held its overnight lending rate at 4.50 per cent since March and is set to announce its latest interest rate decision on June 7.
The bank's last available economic data point was April’s hotter-than-expected consumer price index, which showed inflation climbed to 4.4 per cent annually, according to Statistics Canada.
Perrault is the second economist to call for a rate hike. CitiGroup’s Veronica Clark was the first to call for an increase from the BoC.
In addition to Canada’s elevated living costs, Perrault also pointed to the country’s exceptionally strong housing market and high employment as two other key data points that don’t ease the affordability challenge.
While the metrics are strong, another expert argued that the BoC doesn’t have enough data to warrant a rate hike next month.
“I think this June meeting is going to be still more of the wait-and-see attitude, still looking at how the fundamentals are evolving in the Canadian economy, before making another precipitous decision,” Karl Schamotta, chief market strategist at Corpay, told BNN Bloomberg in an interview on Tuesday.
He suggested that if the data continues to point to upside risk, then there could possibly be a rate hike ahead.
“If we see stubbornly high inflation numbers for May, stubbornly strong employment growth for May, that might push the Bank of Canada towards a hike – that might be in July,” he said.