BoC Preview: Forecasts from nine major banks, very close call

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, December 7 at 15:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of nine major banks, regarding the upcoming announcement.

The BoC is set to hike its benchmark rate by 50 bps from the current 3.75% to 4.25% though it could slow the pace of tightening without warning. In such a scenario, there is a chance the bank will opt for a smaller hike of 25 bps.

ING

“Both markets and economists are split down the middle on whether it will be a 25 bps or 50 bps hike. We favour the latter given a robust 3Q GDP outcome, the tight jobs market and the ongoing elevated inflation readings. But we acknowledge there are signs of softening in the economy. The housing market is looking vulnerable and Canadian households are more exposed to higher rates than elsewhere due to high borrowing levels so we recognise this is a very close call. We are getting very close to the peak though, which we think will be 4.5% in 1Q 2023.”

TDS

“We look for the BoC to lift rates by 25 bps in December in what is admittedly a close call. We see the BoC's terminal rate at 4.25%, and as such expect the BoC to signal that it expects to lift rates further. The BoC is unlikely to offer much to move the needle on the CAD.”

RBC Economics

“The BoC won’t hit the brakes on interest rate increases but it is likely to slow them down. And we believe this week’s increase could be the last in this cycle. We expect a 25 bps increase in the overnight rate to 4.0% from the central bank. Perhaps more important than the size of Wednesday's interest rate hike is how many more could follow. The answer to that question depends on inflation. Inflation is still running well above the 2% target rate, but a 4.00% overnight rate is likely enough to slow economic growth and inflation pressures further. The BoC will almost certainly (and correctly) keep the option to hike interest rates further if necessary. But our own base case expectation is that December will mark the last rate hike of this cycle.”

NBF

“We concede the 25-50 bps debate is a close call, but we’re officially looking for the BoC to hike by 25 bps, bringing the policy rate to 4%. We think there’s sufficient evidence in recent data most important to the Bank to support that decision. Just as important as the decision itself will be changes to guidance. We see a decent chance they get rid of their go-to line that ‘interest rates will need to rise further’ and put even more emphasis on data dependence. On balance, a more hawkish Fed might have some gravitational pull on the BoC but we definitely don’t expect a one-for-one impact and still believe this hike could be the Bank’s last.”

Citibank

“While market expectations are split between a 50 bps hike and a 25 bps hike from the BoC this week, we expect another larger-than-’usual’ 50 bps hike as there has not been any notable progress on cooling demand or inflation. This is certainly still the case with the average of the preferred measures (CPI-trim and CPI-median) rising from 5.0% before the October meeting to 5.1% in the latest released data. We expect a 50 bps hike this week followed by successive 25 bps hikes in January and March, to take the terminal rate to 4.75%.”

CIBC

“We’ve stuck with our call for a 50 bps move, but the language of the statement no longer guarantees further hikes ahead.”

BMO

“We lean to the 50 bps option, but readily admit that there is a decent case for a slower pace of hikes.”

Wells Fargo

“We expect a 25 bps rate hike, bringing the policy rate to 4.00%. As of October, headline inflation in Canada came down from a recent peak, but remained stuck at a 6.9% YoY rate. While the headline rate of inflation remained the same from September to October, underlying prices accelerated. The average of trim and median inflation, two measures of core inflation tracked closely by the central bank, quickened to 5.1% YoY, showing that even though headline inflation may have peaked, underlying price pressures remain persistent. This should keep the BoC on its tightening path for the time being.” 

Goldman Sachs

“We expect the BoC to deliver another 50 bps hike, but under-delivery remains a risk on two fronts. First, it is possible that the BoC sees enough justification to hike by 25 bps only, given the moderation in sequential underlying inflation. Second, we think that the BoC is likely to pause soon and the statement or press conference may already signal this.”