BoC Preview: Forecasts from eight major banks, hiking rates again

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, September 7 at 14:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of nine major banks, regarding the upcoming announcement.

The BoC is widely expected to hike its policy rate by 75 basis points (bps) to 3.25% from 2.50% following its September policy meeting.

BMO

“We now look for a 75 bps hike, with an outside chance of a larger move (a la their July 100 bps surprise).”

ING

“We do see a hawkish 75 bps hike supporting CAD on the day of the announcement, but most of the benefits of the BoC tightening for the loonie may take time to emerge, and would likely rely on stabilisation in global risk sentiment and some easing in USD strength. This could start to happen towards the end of the year, and still, high energy prices do suggest that a move to 1.25 in early 2023 is a tangible possibility.”

RBC Economics

“Another hefty 75 bps increase in the overnight rate is what we expect from the BoC. This would take the rate to a restrictive 3.25%, just above the 2% to 3% range the central bank deems ‘neutral’ (the rate at which interest rates are neither adding to nor subtracting from longer-run economic growth trends). And the bank’s commitment to front-loading rate hikes in the face of red-hot inflation means an even bigger 100 bps increase (matching July’s hike) can’t be ruled out. We expect policymakers to maintain a tightening bias beyond September, and follow up with an additional 25 basis point hike in October, bringing the overnight rate to 3.5%.”

TDS

“The economic situation clearly calls for restrictive policy rates, and we see a clear path for the BoC to hike by 75 bps in September. We expect the pace of tightening to slow in October however, which may imply some moderation in the Bank's forward-looking language in the September communique.” 

NBF

“The BoC is set to deliver its fifth rate increase in as many meetings. We believe that 75 bps is the most likely outcome. In addition to the headline decision, there will be as much attention on updated policy guidance. We’ve argued that the BoC should pause its hiking cycle after bringing the policy rate into restrictive territory, allowing the economy time to catch up to the rapid tightening introduced to date. We might not see this explicitly written in the statement, but we’ll be looking for clues that the Bank is considering taking its foot off the brake – perhaps by emphasizing the need to be ‘data dependent’ going forward. The decision itself will be a statement-only affair, but we will hear from Senior Deputy Governor Carolyn Rogers on Thursday in an Economic Progress Report.”

Citibank

“We expect a 75 bps hike by the BoC, taking the policy rate to 3.25% with modestly hawkish risks around communications. Ultimately, the September meeting may still be too soon to sway much from a still-very aggressive stance to raising rates in order to cool inflation. Updates to the September policy statement could echo the op-ed released by Governor Macklem in August following the softer July CPI report. This suggests the statement could express some optimism around a potential peak in inflation as energy prices have declined. However, this is unlikely to reflect a new shift in the BoC’s assessment of the current inflation backdrop. So far, rate hikes have been explicitly characterized as front-loading, but this guidance may be rewritten as further rate hikes reflect a move to a restrictive level of rates. Our base case is that the BoC is unlikely to guide towards reaching a point of pausing the hiking cycle at least until the October meeting.”

CIBC

“We’re looking for a 75 bps hike, with the statement changing to say that interest rates might (rather than will) have to rise further.”

Wells Fargo

“We expect the BoC to deliver a 75 bps hike to 3.25%. We think the BoC will slow down the pace of its hikes beyond September, only taking the policy rate to 3.75% by the end of Q4-2022, although we see the risks as remaining tilted to a higher peak. We will be particularly interested in guidance on future policy from the BoC, especially against a backdrop of slowing growth and still-elevated inflation.”