David Dodge, a former central bank governor, said that the Bank of Canada's attempts to curb inflation won't hit the economy in full until the middle of next year.
The central bank struck the right note after its half-point hike in December, according to Dodge, who now serves as an adviser at Bennett Jones.
When we did not know what was happening, we used to say that.
The man is David Dodge.
Dodge said in an interview that where we go from here is data dependent. When we didn't know what was happening, we used to say that. It's the correct thing to say.
The Bank of Canada should be able to stop its rate hike at 4.5 per cent because Dodge made the case that decades-high price pressures would abate.
The impact of what has already been done will start to have an impact by the end of the second quarter or during the second quarter of the next year. The Bank of Canada has said that prices and margins will respond to the tightening that has already taken place by the end of the second quarter.
Inflation is expected to return to the central bank's two per cent target by the end of 2024, but the Bennett Jones team is wary of uncertainties stemming from China's wavering zero-COVID policy and the impact of the Russian invasion of Ukraine. Bennett Jones thinks that the economy will grow by 2%.
Over the course of the year, the Bank of Canada has raised interest rates by four percentage points. The rate hike campaign came after decades-high inflation pressures, which reached an annual rate of 6.9 percent in October.
The authors of the outlook noted that the Canadian economy does not appear to be slowing down. It takes a long time for higher interest rates to affect demand, through lost jobs, strained business revenues and stagnant output.
The one segment of the economy that has been reacting quickly to rising rates is housing, with prices in cities such as Toronto andVancouver falling from their peaks. The first casualties will be the recent homebuyers who bought at the margins during the epidemic with high leverage.
The number of mortgage holders who will hit the wall financially should be relatively low because some of them have gotten themselves on the edge. It is very difficult for those individuals that lose their homes. The five-year bond rate is likely to be lower in 18 months if you can survive for a year or two.
The Bank of Canada expects economic growth to slip to 1.5 per cent from 3.25 per cent in 2022.
Uncertainty is the key theme heading into the new year due to the conflict in Europe.
The rate of inflation is expected to ease by next summer because of the war, according to Dodge.
Dodge said that it's truly uncertain. It will be a judgement call for the Bank of Canada, whether they go up at all or not, if we are right about all that. We are in the range of zero to a quarter.
The email address is shughes@postmedia.
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