Bank of Canada delivers a hawkish double-dose
|Summary
- Today's Bank of Canada (BoC) monetary policy announcement was much more hawkish than expected. The BoC ended its quantitative easing program with immediate effect, and also signaled that policy interest rates could start rising earlier than previously expected.
- Given the central bank's signals, we also expect an earlier lift-off for Bank of Canada rate hikes than previously. We now forecast an initial 25 bps rate increase in April 2022, followed by another 25 bps in July 2022 and again in October 2022.
- Our forecast for monetary tightening is more gradual than what is currently priced in by market participants. Still, given the overall backdrop, including steady growth, a steady series of rate hikes, and elevated commodity prices, we remain comfortable with our forecast of moderate Canadian dollar appreciation over time. We forecast a USD/CAD exchange rate of CAD1.1800 by early 2023.
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