Canada's Interest Rate Hikes May Be Limited by Soft Economy

The Bank of Canada's plans for interest rate hikes may be limited by a soft economy, according to a new report from Capital Economics.

The report argues that trade uncertainty and slowing immigration levels could restrict how high the central bank's benchmark interest rate goes next year. The Bank of Canada has held its benchmark interest rate at 2.25 per cent since last October as it gauges how the U.S. trade dispute and war in Iran are affecting its outlook.

Capital Economics forecasts that the central bank will raise rates to 2.75 per cent with a pair of quarter-point hikes starting next year, which would bring the policy rate to the middle of what the Bank of Canada considers its neutral range, the point at which borrowing costs are neither stimulating nor suppressing growth.