Industry observers weigh in on the market forces influencing the central bank's policy rate decisions
More and more market observers are pegging the Bank of Canada’s next hike to be at least 0.5%, with a new poll from the central bank indicating that as much as 70% of business executives are expecting inflation to remain above 3% over the next two years.
“If we still needed to cement the case for a half-point rate hike in April, the Bank of Canada’s Business Outlook survey provided it, at least in terms of inflation expectations,” said Avery Shenfeld, chief economist at CIBC Capital Markets.
CIBC is now anticipating that the BoC will hike its overnight rate by 0.5% this month, followed by an even sharper 0.75% increase in June, one more 0.5% hike in September, and followed by two 0.25% upticks in 2023 to end up at 2.25% by June next year.
“If fiscal policy turns somewhat tighter as some of the largest provinces try to pare back debt ratios, the neutral rate could well end up being the peak setting for monetary policy,” Shenfeld wrote in an analysis.
Read more: Hawkish Bank of Canada speech puts half point rate rise in play
Royce Mendes, head of macro strategy at Desjardins Securities, is similarly predicting a hike of anywhere between half a point to 1% at the BoC’s April 13 policy announcement.
“Reading between the lines, it seems like inflation expectations are gradually becoming unmoored. Even though respondents see inflationary pressures fading as the pandemic and supply chain disruptions subside, the Bank of Canada needs to be on high alert to keep longer-term expectations anchored,” Mendes said.
