OTTAWA- Canada’s economic growth in the fourth quarter was stronger than expected and it likely rose again in January, boosting speculation that the Bank of Canada will reduce its bond purchases soon.
The economy grew at an annualized rate of 9.6 percent in the fourth quarter, beating analyst expectations of 7.5 percent, data from Statistics Canada showed on Tuesday. Real GDP likely climbed 0.5 percent in January, according to a preliminary estimate.
In response to the COVID-19 pandemic, the central bank last year slashed interest rates to near zero and introduced a large-scale bond buying program – known as quantitative easing – to ensure market liquidity.
“There had been speculation already that they (the Bank of Canada) would start to taper the quantitative easing purchases, at least announce that as soon as April. This just makes it more likely,” said Nathan Janzen, senior economist at RBC Economics.
Bank of Canada Governor Tiff Macklem reiterated last week that interest rates will stay at record low levels until into 2023. The next rate decision is on March 10.
Canadian mortgage rates are beginning to inch higher for the first time since before the COVID-19 pandemic, reflecting the spike in long-term bond yields.
But if economic growth remains robust and the output gap closes more quickly than expected, a rate change could also come sooner than 2023, said economists. Money markets see about 50 basis points of tightening already in 2022.
“I think they’ll find it difficult to stay on hold (with interest rates) as long as they are guiding,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank. – Reuters