9 January 2018

Despite the fact that 2017 showed the strongest GDP growth in 6 years and the jobless rate fell to the lowest mark in 40 years, Porter still points to quite a low inflation.

Moreover, the recent business outlook poll showed that most executives still expect the inflation to remain at 2% or below it during the next 2 years.

The loonie rose by 11 percent against the U.S. currency since May, and the possibility of a rate hike could support this growth. Poloz may decide to restrain the increase this time.

According to Porter and Derek Holt from Bank of Nova Scotia, there are also risks of the U.S. abandoning the North American Free Trade Agreement, which would affect three-quarters of Canada’s exports.

Poloz has said several times that the BoC was monitoring how 2017 rate hikes affected the highly indebted borrowers. Last month, he noted that “high debt levels will make the economy more vulnerable to interest rate hikes now than in the past.”

In addition to it, the new federal mortgage rules, which took effect on January 1, also make it more difficult for certain borrowers to purchase a home. It will definitely influence the real estate prices and increase the risks from higher interest rates.

A rate hold this time will lead to a stronger shock for the markets than the September’s increase, when economists had different opinions, says Holt. “If we’re wrong in this case, we’ll be all wrong”, – he added.