BoC Preview: Forecasts from seven major banks, a 25bps hike with several more to come

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, March 2 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 seven major banks, regarding the upcoming announcement. 

As the BoC 25 bps rate lift-off is well discounted by the market, the focus will remain on any hawkish tilt in the forward guidance.

NBF

“BoC should finally begin its rate normalization exercise. Wednesday’s rate hike will be the first of many (five in our estimation) this year as the BoC finds itself on the back foot in its fight against above-target inflation. There’s undoubtedly a very strong case to be made for going big with a 50 basis point move but we’ve not seen enough from the BoC to suggest that’s coming. On the other hand, the central bank will have become aware of increased geopolitical risk following the invasion of Ukraine by Russia, an element that could favor a more cautious approach. This explains why, as of now, our base case incorporates a vanilla 25 bp-25 bp March-April hike structure, consistent with the empirical record for BoC tightening cycles.”

TDS

“The BoC loudly telegraphed a rate hike in March; we look for a 25bp increase, as the facts on the ground haven't changed enough to justify a more drastic tightening. We expect the Bank will remain in its reinvestment phase for the balance sheet, and it will signal more rate hikes to come. With the Fed and BoC set to hike next month, we don't see a huge swing factor for USD/CAD. The BoC might offer CAD a marginal first-mover advantage versus the USD but much depends on risk appetite and geopolitical developments.”

ING

“A 25bp rate hike is our call for this meeting despite geopolitical nervousness. We continue to look for six interest rate increases in total from the BoC this year, with a further three in 2023. This would leave the policy rate at 2.5% by the end of next year, a level it was last at all the way back in October 2008.”

RBC Economics

“Russia’s invasion of Ukraine is not expected to keep the Bank of Canada from hiking interest rates. The BoC in January expected the Omicron wave would be ‘less severe than previous waves’ and current conditions look to be playing out that way. We look for the BoC to follow Wednesday’s expected rate hike with 3 more this year, the next coming as soon as April.”

Citibank

“We expect a 25bp rate hike this week, taking the policy rate to 0.50%. Our base case is then 25bp rate hikes at each of the April, June, July, and October meetings this year but hiking by less than what markets currently price for tightening beyond 2022. One potential hawkish risk for this meeting, however, would be if the BoC announces the end of balance sheet reinvestments. This is not our base case but there could be some more communications around the details of how balance sheet runoff will work (when it commences). We also expect a largely neutral statement, as the BoC has been clear in its intentions to raise rates in a series of steps in order to respond to too-high inflation.”

CIBC

“A healthy Q4 for real GDP ended on a soft note in December, and with that likely to have carried through into January, sets the stage for a Covid-related soft patch in the overall Q1 pace. But unlike when it met in January, the BoC can point to a steady taming in hospitalizations and a reopening in services in late February, giving it the green light for what we expect will be a quarter-point hike this month, and another in April. The Bank isn’t a fan of forward guidance when it’s no longer at the lower bound on rates, so the market will be left to its own devices in estimating the precise path ahead. But its language will indicate that it expects a series of rate hikes to provide a braking force on inflation later this year and into 2023 while conceding that in the near-term, the CPI will continue to run well about its target.”

Wells Fargo

“As inflation and labor market dynamics evolve in this way, we continue to believe the BoC will look to raise interest rates. We recently adjusted our forecast and now believe BoC policymakers will raise policy rates 25 bps. We will be paying attention to any commentary around recent developments and their impact on monetary policy.”