The Bank of Canada might raise its rates at a pace not seen for more than two decades, BMO predicts
Taking current geopolitical and macroeconomic trends into account, BMO is predicting more aggressive near-term tightening, coupled with a higher end point for rates.
“We now expect a 50 basis-point rate hike at each of the next two policy announcements (April 13 and June 1), followed by a 25bp move in July,” said Robert Kavcic, senior economist and director of economics at BMO.
“That would put rates at 1.75%, before the Bank slows the cadence with 25 bp rate hikes at each of the following three MPR meetings (October, January and April ‘23), leaving policy rates at 2.5%.”
The US Federal Reserve is likely to exhibit a similar trajectory, reflecting the current volatility in North American markets.
“We now expect the FOMC to raise rates by 50bps at the next two meetings before shifting back to a 25bps-per meeting cadence for the reminder of the year, with the target midpoint hitting 2.375% by December,” Kavcic said. “We suspect the Fed will move more cautiously (every second meeting) in 2023, with the target range settling at 2.75%-to-3.00% by mid-next year.”
Read more: Industry observers weigh in on the likely stronger BoC rate hikes this year
Multiple investors said that they are bracing for such a pace of increase in the Bank of Canada’s hikes. A 0.5% increment in the BoC rate was last seen in May 2000, Reuters reported.
“The Bank of Canada needs to aggressively tighten policy to keep inflation expectations for the consumer and also for businesses well anchored,” said Simon Harvey, head of FX analysis at Monex Europe and Monex Canada. “It’s a case of ‘do it now because later it will come at a greater cost to economic growth.’”
