BoC Preview: Forecasts from nine major banks, hiking interest rates aggressively – FXStreet

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, July 13 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 set to hike rates by 75 basis points (bps) – an extraordinary pace in normal times – to cool a heating economy. 


“We look for the BoC to lift rates by 75 bps, bringing the overnight rate to 2.25%. Markets have almost fully priced the move, and a dovish surprise would raise questions about the Bank’s commitment to its inflation target. The tone of the communiqué should be stridently hawkish given recent data on inflation and inflation expectations, despite expected downward revisions to the growth outlook.” 


“We expect the BoC to implement a 75 bps move. The economy is growing strongly, is at record employment levels and its inflation rate is running at 7.7%, the fastest rate since January 1983. The housing market is also red hot while Canada’s strong commodity-producing sectors mean it is far more resilient than most major economies to the spike in prices.”

RBC Economics

“We expect a 75 bps increase. That would be the largest single rise since the 1990s. May CPI growth at 7.7% (year-over-year) is running well above the bank’s April forecast of 5.8% in the second quarter. And 60% of the prices tracked by the measure are growing above the BoC’s 1% to 3% target range by our count. Worryingly, those higher price readings are beginning to seep into longer-run inflation expectations. An unhinging of longer-run inflation expectations from the BoC’s targets would disrupt decades of effective inflation-targeting monetary policy. It would also require much larger and more damaging interest rate hikes to reverse. Against that backdrop, we expect the economic growth risks from hiking rates too aggressively in the near-term will be overshadowed by the medium-term cost of not doing enough. The overnight rate remains too low at 1.5%. We expect the central bank to continue on a more aggressive hiking path with another 75 bps increase in September. We continue to believe inflation is close to its peak, but won’t shift to more sustainable levels until demand slows more significantly. Once that happens, …….


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