Analysts: GDP Data Raises Chance Of BOC September Hike

By Courtney Tower

     OTTAWA (MNI) - If there had been any lingering doubt about a Bank of Canada

rate hike this fall the very strong GDP data Thursday certainly removed it, and

chances for analysts of one occurring next week moved up.

     Analysts speaking with MNI Wednesday, before Statistics Canada announced a

soaring 4.5% increase in growth in the second quarter, which ended in an

above-expectations June (+0.3%), had been quite sure of an increase this fall

but centered on October 25.

     Now, the same analysts believe the chances of a September 6 hike to 1.00%

from 0.75% set last July, have gone up marginally. They still think the October

25 date more likely.

     Avery Shenfeld, chief economist for CIBC, told MNI that "we now think the

chances of the BOC announcing its hike next week have moved up a bit." He added,

"The data is very strong overall and strong in its details, certainly showing

that the present level of monetary policy stimulus is not needed." He also said,

"the outlook is good for the third quarter."

     "That might move the BOC to announce its hike in September, rather than in

October as we had thought more likely."

     Points of encouragement for the BOC's outlook on the economy in Thursday's

data included "the hints of a bright side in capital spending and that goods

exports are rising," he said.

     For Douglas Porter, chief economist at Bank of Montreal, the data

"certainly reinforces the likelihood that the BOC is on track to raise its rate

this fall. We had been pretty sure of that but now there is no doubt."

     For the BOC to announce a hike next week, however, Porter told MNI he

thought the chances had risen slightly. "We still think it more likely that they

will go in October, with the September 6 statement indicating that gradual

increases are in prospect," he said.

     David Madani of Capital Economics on Wednesday had been another expecting a

rate hike in October with a possibility of the Bank acting next week. Now, he

told MNI, "perhaps at the margin the data changes the prospect to September 6,

only at the margin."

     The June data ending the second quarter, overall and in its details sets

the economy up for "a decent third quarter," he said.

     For IHS Markit economist Arlene Kish, however, the chance of a rate hike

has not moved up marginally, but rather "sharply."

     Still, the BOC will most likely wait until October, Desjardins economist

Jimmy Jean said, reaffirming the expectation he had prior to the GDP data.

     "Our sense is that given the high debt sensitivity of the economy, the BOC

will want to have fresh forecasts in hand before making any decision, at the

very least in the initial stages of the normalization," he said in a commentary.

     Most expectations prior to Thursday, by analysts and by the BOC, have been

for a slowdown in growth from the current high pace, to take place in the second

half this year and beyond.

     Paul Ferley, assistant chief economist at Royal Bank of Canada, wrote in a

commentary that the sustained above-potential growth will surely be discussed by

the BOC next week in its policy statement accompanying its rate decision and

presents a strong argument for continuing to increase the policy rate. "However

we lean towards the expected moderation in Q3 growth along with inflation

generally remaining below target to keep the central bank on the sidelines at

this meeting before resuming tightening at the October meeting," he said.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]