Eight times a year, the bank’s board of governors meets to assess the latest economic indicators and decide whether Canada’s economy needs a shot in the arm from\u00a0a rate cut,\u00a0or a\u00a0pump of the brakes\u00a0by way of a hike.\u00a0<\/p>\n
And for the first time in 54 such meetings, it’s looking like the latter\u00a0is in order.<\/p>\n
It’s not like there haven’t been warning signs. By the time Stephen Poloz was named to replace Mark Carney atop the bank in 2013<\/a>, the central bank had already been on the sidelines for more than two years, its benchmark interest rate set at one\u00a0per cent.<\/p>\n Since Stephen Poloz, right, took over the helm of the Bank of Canada from Mark Carney, left, in 2013, the bank has yet to raise interest rates. (Adrian Wyld\/The Canadian Press)<\/p>\n But even as the bank kept loans\u00a0cheap coming out of the financial crisis, the messaging from the top came early and often\u00a0that Canadians should be forewarned\u00a0\u2014\u00a0rates have to go up eventually.<\/p>\n As far back as 2014<\/a> Poloz warned\u00a0Canadians that rates would rise “soon” \u2014 before oil’s plunge in 2015 caused the bank to lose its nerve. Instead, the central bank\u00a0moved in the opposite direction, cutting rates twice that year to bring its rate to 0.5 per cent, where it currently sits.<\/p>\n At the time, those hikes were described as a temporary measure to help a Canadian economy that had been waylaid by an oil price that lost more than 70 per cent of its value in a matter of months. But in recent weeks the bank has started\u00a0leaving clear signals that despite oil still being in the $40-per-barrel\u00a0range, those temporary conditions are over\u00a0and it’s time for a return to normalcy.<\/p>\n It started on June 12, when senior deputy governor Carolyn Wilkins\u00a0told a Winnipeg audience<\/a> that Canada’s\u00a0economy was starting to “pick up” and was showing signs of “moving past” the oil shock.<\/p>\n That prompted speculation that the bank was ready to take its foot off the gas, a notion that was reinforced by a number of pronouncements since then. Poloz told U.S. financial network CNBC\u00a0this week<\/a> that “those cuts have done their job.” That may not sound like a ringing endorsement, but economists who monitor the bank say it marks a sea change in messaging.<\/p>\n “If they think\u00a0those cuts have done their job,” BMO economist Doug Porter told CBC last week, “now they can reverse them.”<\/p>\n He’s not the only one who expects a rate hike. It would be “imprudent to ignore the aggressive communication shift we have seen from\u00a0the Bank of Canada,” Manulife’s\u00a0senior economist Frances Donald said.<\/p>\n Since Wilkins’s speech started the speculation, the bank has had more than one chance to walk down those expectations, if it\u00a0felt her comments were misinterpreted. The fact that the bank hasn’t done so speaks volumes, Donald said.<\/p>\n Currently, bets on the bond market imply\u00a0there’s about a 60 per cent chance of a rate hike next week, something the Canadian economy hasn’t seen since September 2010.<\/p>\n While nobody’s expecting anything more than a slight 25-point ratcheting-up of the rate to 0.75, the symbolism of such a move is huge. Spurred on by cheap lending and housing prices that have been defying gravity<\/a> for the better part of a decade, Canadians are now more in debt than ever before.\u00a0<\/p>\n Canadians now owe $1.67\u00a0for every dollar in income they earn<\/a>, official data show, and the typical borrower now owes more than $22,000<\/a> \u2014 on top of their mortgage.<\/p>\n Technically, the Bank of Canada’s mandate is to manage inflation, not worry about debt loads. But a major move to interest rates would be catastrophic with debt loads sitting so high, which is why the bank seems to be warning borrowers that they’re going to slowly start taking away the punchbowl from homebuyers who’ve overindulged.<\/p>\n As\u00a0BMO economist Benjamin\u00a0Reitzes\u00a0put it, the “desire\u00a0to\u00a0instill a bit more discipline in the housing market,” is clearly in the back of the central bank’s mind while telegraphing their change of heart.<\/p>\n![\"hi-carney-poloz-cp04375492-8col\"](\"https:\/\/i.cbc.ca\/1.1476254.1379028213!\/httpImage\/image.jpg_gen\/derivatives\/original_620\/hi-carney-poloz-cp04375492-8col.jpg\")
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