BoC Preview: Forecasts from seven major banks, inching ever closer to rate hikes

The Bank of Canada (BoC) will announce its monetary policy decisions on Wednesday, December 8 at 15:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks, regarding the upcoming announcement. No change is expected in the 0.25% overnight rate target but there is a big asterisk now relating to the uncertain impacts of Omicron.

ING

“No policy changes are expected after policymakers decided to end QE in October and brought forward guidance for the timing of the first rate hike to mid-2022. Given less spare capacity than most other economies, we immediately shifted to forecasting four 25bp rate hikes in 2022 after the October announcements, with one hike per quarter. We are reluctant to make any changes to this view right now given the uncertainty over Omicron, but the obvious risk is that the BoC ends up delaying the first hike until 2Q should consumer caution kick in on Covid anxiety. The BoC is also mulling changing its inflation target that could be more explicit about tolerating inflation overshoots in a move that would follow the US. However, the BoC already has a framework that is well understood and already contains flexibility so there seems little need for any radical changes.”

TDS

“We look for a relatively quiet BoC meeting, with limited scope for a meaningful change in tone. The BoC will maintain that the outlook is evolving as expected and that inflation strength is largely transitory. We do not expect any change to guidance, as the statement balances rising uncertainty over COVID-19 and supply chain disruptions from BC floods against labour market strength. A quiet BoC meeting shifts CAD drivers to the world at large. In turn, covid uncertainty, heightened risk aversion, and a relatively poor local growth and mobility backdrop should keep USD/CAD hanging around 1.28 for a bit longer.”

RBC Economics

“The BoC might still be able to point to pockets of weakness in labour markets—long-run unemployment is still elevated, for example. But arguments to keep policy interest rates at emergency low levels are getting thin. The BoC is expected to reiterate that, barring significant further disruptions from the new virus variant, the economy is on track to fully recover by mid-2022, and that interest rate hikes will be warranted at that point. We expect the first rate hike next year to come in April.”

NBF

“We had initially anticipated the rate announcement to be a rather muted affair, there being no accompanying Monetary Policy Report or press conference. But the release of November’s employment data laid waste to these expectations. The sheer strength of the report – 153K jobs were added in the month – calls for a change of tone at the BoC, especially in a context where inflation continues to drift further above the central bank’s target. While we still expect the BoC to maintain the overnight target rate at its lower bound, the language of the statement will have to be tweaked to take into account what has proven to be a much stronger recovery than what the central bank had expected just a few months ago. Granted, this renewed optimism could be tempered by growing uncertainty – the Bank is likely to mention the risks associated with the emergence of the Omicron variant – but that probably won't stop it from setting the stage for a possible rate hike in the first quarter of 2022. Barring a catastrophic surge in COVID-19 hospitalizations, the days of stable interest rate policy are numbered. We see the first BoC rate hike arriving by March of next year.”

Citibank

“We expect the BoC to leave rates unchanged at 0.25% though we will watch for signs the BoC could be considering a rate rise even earlier than the latest guidance for the ‘middle quarters of 2022’. After the hawkish October surprise, we expect a slightly hawkish tone to this meeting with risks tilted to an even more hawkish shift, with BoC perhaps signaling openness to a Q1 hike.”

BofA

“We expect the BoC to keep the policy rate at 0.25% and to maintain its current forward guidance. We expect liftoff in April. But a red-hot labor market means the risk is BoC moves the ‘live’ meetings forward to 1H from the middle quarters of 2022. Hawkish tone may not translate to further front-end selloff or CAD downside due to aggressive BoC pricing and global risks." 

CIBC

“Bank of Canada’s meeting would be an opportunity to reinforce the message that rate hikes are on the table for no later than April 2022. It can offer up an even more positive outlook, and signal rate hikes are coming, but the language surrounding that forecast should sound much less certain until we have more information about Omicron, the mutated elephant in the room.”