As of May 9, 2012 – In light of the still-lofty debtloads, the signal emerging from the central bank in April that interest rates are likely to rise sooner than later will present a challenge to many households. In response, we, along with many other forecasters, have tinkered with our interest rate forecast. 

We now believe that the Bank of Canada will likely resume hiking interest rates this coming fall rather than in the winter. However, those increases are still likely to be very gradual. We feel that they will be limited to just 1 percentage point in increases over the next two years. With the U.S. Federal Reserve on hold likely until 2014, any hikes in excess of that by the Bank of Canada would put upward pressure on the Canadian dollar, dampen export growth, and weaken the economic recovery. However, once the U.S. economy gains more traction and interest rates head higher, the Bank of Canada will have more scope to raise the overnight rate further…