The central bank's "hawkish tone" leaves no room for doubt when it comes to its near-future approach to the policy rate
Despite two 50-basis-point hikes so far this year, the Bank of Canada is nowhere near done when it comes to outsized increases of its overnight rate, according to RBC Economics.
The June 01 hike – which was “unanimously expected” as part of the central bank’s stated strategy to herd monetary policy toward a more neutral stance – signals a “hawkish tone” that reinforces RBC’s predictions of yet another 50bp hike in the BoC’s next rate announcement on July 13.
Such a move would push the overnight rate to the lower end of the central bank’s 2-3% neutral estimate, said Josh Nye, senior economist at RBC.
“At that point we think these decisions will become less automatic. But this doesn’t sound like a central bank that is planning to pause at 2%, and we continue to look for additional 25bp hikes in September and October resulting in a terminal rate of 2.5%,” Nye added.
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RBC said that it agreed with the central bank’s upbeat assessment on current economic conditions, with “growth [looking] set to pick up in the current quarter.” This is despite the housing market already beginning to feel the stronger impacts of the BoC hikes.
“The bank passed on a number of opportunities to inject more caution or dovishness into [the latest] statement, focusing instead on the many arguments for further tightening,” Nye said.
