BoC Preview: Forecasts from 10 major banks, taking what is offered, a 75 bps hike

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, October 26 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 Bank of Canada (BoC) is on track to deliver another 75 basis points (bps) hike, raising its policy rate from 3.25% to 4.00%. The bank’s Monetary Policy Report (MPR) will be published parallelly at the time of the interest rate decision. Governor Tiff Macklem’s press conference at 15:00 GMT will be also closely scrutinized for the bank’s next policy move.

BMO

“We are now expecting a like-sized 75 bps hike from the BoC. This would take the overnight rate to 4.0%, and we suspect that will not be the end of it – pencilling in a 25 bps move in December.”

ING

“In Canada, the central bank is under pressure to hike rates a further 75 bps given the upside surprise in inflation. Job creation has also returned and consumer activity is holding up so we agree that 75 bps is the most likely outcome having previously forecast a 50 bps hike.”

TDS

“We look for the BoC to lift its policy rate by 75 bps in October due to stubbornly broad and persistent underlying inflation. We expect an additional 25 bps move in December with a terminal rate of 4.25%, as rapidly slowing growth will warrant a pause in the new year. The CAD is doomed. The higher that rates go, the greater the downside macro shock and the more the CAD needs to reflect it.”

RBC Economics

“We expect a 50 bps increase to take the overnight rate to 3.75%. That’s smaller And risks remain that the central bank could go bigger: markets are currently leaning toward a 75 bps increase. We continue to expect higher inflation and interest rates to push Canada into a moderate recession in the first half of next year. That would put the central bank in a position to pause interest rate hikes by the end of 2022. And indeed, we expect the overnight rate to end the year at 4%. But risks to that assumption are still tilted to the upside, and are contingent on broader inflation trends showing further evidence of slowing.”

NBF

“Expect the BoC to hike the overnight target rate 75 bps to 4%. That would make 375 ps of cumulative tightening via six consecutive decisions. Wednesday’s hike may not be the last and the BoC will likely be reticent to wave the ‘all clear’ via forward guidance, at least until inflation is more controlled. But by pushing rates into decisively restrictive territory more quickly, it’s less obvious to us that rates will need to move up much further. Wednesday’s rate announcement will be followed by a press conference in which policymakers could signal a turn towards a more data dependant approach for the BoC.”

CIBC

“We suspect that still hot inflation (even excluding food/energy) will tip the Bank into another 75 bps interest rate hike, rather than the 50 bps move that we had previously anticipated. However, policymakers will soon have to find a creative way to pause this rate hike cycle, without damaging its inflation-fighting credibility, while they wait to assess how the economy is coping with the rate hikes that have already been delivered.”

Citibank

“While it is a very close call between a 50 bps hike or a 75 bps hike, we still lean towards expecting a 50 bps hike but still expect a significant hawkish emphasis that rates are still likely to rise further and expect another 50 bps hike in December taking the policy rate to 4.25% before a pause, but with risks that hikes continue into 2023 and reach a higher terminal rate.”

Rabobank

“We expect the Bank of Canada to raise rates another 75 bps, taking the policy rate up to 4.00%. Canada has not felt interest rates that high since the beginning of 2008. We are likely to see significant repricing of the curve and FX volatility in the aftermath of the decision. This will be compounded by the release of a new Monetary Policy Report and all the projections within, and volatility won’t end there given that Governor Macklem will hold a press conference an hour after the decision. In short, this week’s decision could prove a lively one for BoC watchers and CAD traders.”

Wells Fargo

“We do expect the BoC to raise interest rates, although the 50 bps policy rate increase to 3.75% that we forecast would be smaller than the rate hikes delivered at the July and September announcements.”

BofA

“We expect the BoC to slow down the pace and hike the overnight rate by 50 bps to 3.75%. Inflation and inflation expectations remain high and the labor market is still tight, so another higher-than-normal rate hike is very likely. Still, the risk of another 75 bps hike is relatively high.”