Rate Shock Has Economists Questioning Bank of Canada’s Rosy View

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Rate Shock Has Economists Questioning Bank of Canada's Rosy View

Economists say that will be a challenging feat.

The rosy outlook comes with a big risk. A wrong call on economic growth would be another blow to the central bank’s credibility, which is already in question after repeated errors in forecasting inflation.

“A soft landing here is a bit like trying to parallel park a car at 60 miles an hour,” Mark Wiseman, chair of Alberta Investment Management Corp., said on BNN Bloomberg Television. “You have to be not just a skilled driver, but an extremely skilled driver and a little bit lucky.”

Story Highlights

  • Though he surprised markets by cranking up the policy rate by a full percentage point to 2.5 per cent, Macklem tried to fuse his hawkish language around inflation with a soft-landing scenario as the most likely outcome in Canada.

  • Doing so assumes that the tightening cycle will be short-lived with rates barely moving into restrictive territory, and that the combination of high inflation and a weak housing market doesn’t seriously derail consumer spending. The central bank still sees Canada’s economy growing by 1.8 per cent next year and 2.4 per cent in 2024 — a Goldilocks scenario.