Bank of Canada: Another half point hike on tap for July - CIBC

The Bank of Canada, as expected, increased the key interest rate by 50 basis points. Analysts at CIBC, see another 50 basis point hike in July before a slow down in September to a 25bp hike. 

Key Quotes: 

“Today’s half point rate hike wasn’t a half measure in the Bank of Canada’s battle against inflation, because in short order, we’ll likely see another move of the same magnitude. The 50 basis point move, taking the overnight rate to 1.5%, was well telegraphed, as was the Bank of Canada’s well-reasoned decision to further reduce monetary stimulus. This was yet another larger-than-normal hike, so to justify it, Macklem’s team couldn’t mince words about their concern over inflationary pressures.”

“There was no announced change to its plans for quantitative tightening, which will let its bond holdings roll off with maturities.”

“Our call for another 50 basis point hike in July would fit the definition for the forceful measures it has talked about. There was, however, a threat to act “more forcefully if needed”, and no counterbalancing hint of a potential need to slow the pace of hikes. That runs counter to our forecast that we’ll see signs of a growth deceleration by early fall, allowing the BoC to slow to a 25 bp hike in September, and then a pause before a final quarter point to 2.5% in early 2023.”

“But with another half point hike on tap for July, likely with more stern language from the Bank of Canada, we expect more of May’s flight-to-safety rally in bonds to be reversed over the summer if equities can even manage to level off.”