As the Bank of Canada strikes a more hawkish tone ahead of next week’s interest rate decision, the CIO of Sun Life Global Investments says raising rates rights now isn’t necessary.
“I think there’s no rush to raise rates. Why do we need to raise rates so fast?” said Sadiq Adatia, in an interview with BNN Tuesday. “Inflation is not there, wage growth is not there. There’s no need to raise rates right now.”
Adatia said straying from a low interest rate environment would hurt jobs in the housing sector and dampen consumer confidence.
“There really is nothing strong about Canada’s economy. And what we’ve only been seeing so far has been decent GDP growth… but if real estate crashes or comes off, then we are going to see jobs losses in that market across the board.”
Adatia added rising rates would be good for the banking sector, but could lead to a five per cent decline for TSX over the next year.
“If Canada raises rates, then we would likely see some pressure on Canadian housing, particularly in some of the hotter markets like Toronto and Vancouver,” he explained. “Given that most people's biggest net worth is tied to housing, this would cause consumer confidence to drop. In addition, if rates go up (along with the U.S. continuing to raise rates) we would see the cost of debt go up and that would restrict how much consumer spend on the economy, hence limiting growth. “
With these factors in mind, Adatia sees little upside in Canada and more downside risk.
“The only potential for the markets do go higher would be a spike in energy prices,” he said.
Speculation of a rate hike ramped up last week when Bank of Canada Governor Stephen Poloz told CNBC low rates “have done their job.” Poloz told a German newspaper on Tuesday that Canada’s housing market has a “resilient structure” and intensified the speculation by saying central banks shouldn’t necessarily wait for inflation to hit levels they like.
“If we only watched inflation and reacted to inflation, we would never reach our inflation target, we’d always be two years behind in the reaction,” he said.
Implied probability of a rate hike remains above 80 per cent for the central bank’s next meeting on July 12.