Rate hikes could be cooling demand more than is apparent: CIBC economist

Ahead of the Bank of Canada’s policy rate decision next week, one economist said interest rates are having more of an effect on demand than is currently understood by the central bank.

In a note published last week, Andrew Grantham, economist at CIBC Capital Markets, noted how the central bank debated in June whether excess savings and pent-up demand from the COVID-19 pandemic were impacting the relationship between interest rates and spending.

“Focusing on recent growth rates, it’s easy to come to the conclusion that rate hikes haven’t bitten into consumer spending plans yet,” Grantham said in the note.

“However, there is one more explanation. It is possible that past rate hikes are already having a bigger impact on demand than perceived, but we are focusing too much on growth rates rather than the level of spending.”