Economists expect the Bank of Canada to raise interest rates again this week as the economy has not weakened enough for the central bank to step back.
The interest rate announcement is scheduled for Wednesday, one month after the central bank raised its key rate by a quarter percentage point, bringing it to 4.75%.
Dawn Desjardins, Chief Economist at Deloitte, said there have been some recent signals that the economy is taking a turn, and the latest June labor report shows an increase in unemployment rate and a slowdown in wage growth.
But the overall outlook suggests that inflation remains stagnant. "I think we're seeing changes in things. Are they changing fast enough for the Bank of Canada? Maybe not," Desjardins said.
On the other hand, the Director of Canadian Economics at Desjardins suggests that the labor market is still tight.
"We're still seeing a lot of underlying strength in the Canadian labor market, much more than you would expect with the overnight interest rate approaching 5%," said Randall Bartlett.
The Bank of Canada and economists in the private sector say the upcoming challenge will be to get inflation back to the 2% target. Economists widely anticipated a recession by the end of 2022. Instead, the economy has continued to expand.
That's why Bartlett said the Bank of Canada's decision to remain aggressive is justified.
"I think the bank is really laying the groundwork to start sustainably bringing inflation up to 2%," he said.
Bartlett said his company's estimate for the second quarter shows growth at twice the pace that the Bank of Canada forecasted in April.
That's why the economist expects the central bank not only to raise rates but also to indicate that further rate increases may occur if the economy does not sufficiently slow down.
The Bank of Canada has remained silent about its plans for July, offering little guidance to financial markets. Instead, it has stated that the governing council would make its decision based on incoming economic data.
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