BoC Preview: Forecasts from 10 major banks, hard to argue against a 50 bp hike

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, April 13 at 14:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 10 major banks, regarding the upcoming announcement. 

The BoC is set to raise rates by 50 bps to 1% and probably signal a more aggressive policy given high inflation and employment.

ING

“We expect a 50bp interest rate increase given the economy is in a strong position, particularly given commodity production is such an important story, employment is at record levels, and inflation is at 30+ year highs. BoC voters have made the case for acting aggressively and we expect them to follow up their words with strong action. CAD may not benefit immediately from the hike  – which is fully priced in – but should stay supported beyond the very short-term.”

TDS

“We expect the BoC to hike by 50bps while announcing an end to reinvestment in a hawkish policy statement. GDP and CPI are both tracking above the January MPR, and the Bank remains keenly focused on controlling LT inflation expectations. On QT, we expect the Bank to cease GoC purchases in the secondary market by May, but maintain primary market retention going forward.”

RBC Economics

“We expect the BoC to hike interest rates by 50 basis points. The central bank will likely take some comfort from the fact that businesses expect inflation to return to the 2% target after the next couple of years. But current price growth is still running too firm to ignore, with pressures building over a widening array of products and services. Easing off the monetary policy accelerator – and getting interest rates back to a more ‘neutral’ level that won’t add to or subtract from longer-run inflation pressures – is the most likely path near-term. We expect more rate hikes from the BoC to lift the overnight rate to 2.00% (up from 0.5% currently) before the end of this year. The bank will likely pause at that point to assess what we expect to be a slowing economic growth backdrop.”

NBF

“The BoC has hardly been putting a 50 bp move on a silver platter for this meeting. While there are no mulligans in central banking, a 50 bp move would at least push us closer to the path that we should already be on. A market that’s braced for such a move should make that decision even easier. We think the Bank will take the opportunity and raise its benchmark rate by half a percentage point. The timing seems all the more good as the meeting will be accompanied by a fresh Monetary Policy Report and a press conference, both of which will provide the Bank with the opportunity to explain its decision more fully.”

BMO

“A 50-bp rate hike is now seen as almost a done deal. This would mark the first 50 bp gulp since May 2000, and would double the rate to 1.0%. Markets are priced for a cannonading 220 bps of rate hikes through the rest of the year (we’re holding at 150 bps), and we would readily allow that the market has been amazingly prescient in its hawkish view on the BoC, at least so far.”

Scotiabank

“Scotiabank Economics led consensus in calling for a 50 bps hike accompanied by ending reinvestment of maturing Government of Canada bond holdings with no roll-off caps. This probably won’t be the last of the fifty moves on the front-loaded path to what we forecast will be a terminal rate overshoot of the estimated 2.25% nominal neutral policy rate that is reflective of where the policy rate should rest in the Canadian economy if it were at full equilibrium. The BoC lost the flexibility to pursue more gradual and measured adjustments by reacting too late to rising inflation. We don’t expect policy rate adjustments to be accompanied by much rate equivalence derived from the pace at which the BoC’s balance sheet is expected to contract independent of other factors.”

Citibank

“Bank of Canada Rate Decision – Citi: 1.00%,  prior: 0.50%. Following the start of its rate hiking cycle with a 25bp hike in March, we now expect the BoC to speed up the pace that it raises rates with a 50bp increase in the policy rate to 1.0%. We also expects this to come alongside an announcement that the BoC will begin to run down its balance sheet. Governor Macklem indicated in March that the BoC plans to allow all Government of Canada bonds on its balance sheet to mature without reinvestment, which would suggest around C$50bn running off this year. The meeting will also feature updated forecasts in the April MPR. Citi analysts see mostly balanced risks around GDP forecasts with some slight upside risks, but inflation forecasts will be the more important update.”

Wells Fargo

“We expect BoC policymakers to continue lifting interest rates and are likely to cite the overall strength of the economy as justication for tighter policy. We also expect the BoC statement to refer to a closing output gap, which should also provide policymakers with rationale to keep raising interest rates. Given the Fed is likely to pick up the pace of interest rate hikes in the near future, there is certainly a possibility the BoC opts to raise policy rates 50 bps at its next meeting. Consensus forecasts believe the Canadian economy is strong enough to handle a 50-bp hike, while financial markets are priced for around 45 bps of tightening. Given our view for a 25-bp hike, the Canadian dollar could weaken in the immediate aftermath of the decision.”

BofA

“We expect the BoC to hike the overnight rate by 50bp to put the rate at 1.00%, and to formalize its quantitative tightening (QT) program. Several reasons support our view of a more aggressive BoC: (i) headline and core inflation above target and increasing inflation expectations; (ii) a tight labor market with the unemployment rate at its lowest level on record; (iii) a positive terms of trade shock from higher oil and other commodity prices; (iv) a hawkish US Fed, which will likely hike 50bp in May and start QT as well. We believe a hawkish 50bp hike and the official end of reinvestment will provide idiosyncratic support to bond yields and CAD this week. Going forward, we expect the BoC to hike by 50bp three consecutive times (April, June, July) and then to continue hiking 25bp at each subsequent meeting until it reaches 3.25% in March 2023. We see upside risks to our BoC call.”

Rabobank

“We expect the Bank of Canada to raise the policy rate 50bp to 1.00%. This marks a shift in our forecast, given we had previously expected the BoC to stick with 25bp clips. Still, a more hawkish Fed and stronger activity, labor and inflation data have led the market to price in a 50bp hike, and in this environment, if you price it, they will come. We expect a more aggressive path in general, with another 50bp likely at the June meeting followed by three 25bp clips taking the policy rate up to a terminal level of 2.25% by year-end. We see the current market-implied rate of 2.55% in December as overdone. We expect the formal announcement of quantitative tightening, which will mark the end of secondary market purchases.”