Big banks weigh in on 2019 rate hikes

By Staff | December 10, 2018 | Last updated on December 10, 2018
2 min read
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The Bank of Canada aims to reach a neutral policy rate with measured interest rate hikes, but just how fast the pace will be is up for debate.

In a weekly economics report, CIBC deputy chief economist Benjamin Tal says there’s confusion about monetary policy because the Bank of Canada’s communication is ambiguous.

“Let’s face it,” he says in the report. “Nobody has a clue what’s happening.” His response is based on the previously hawkish Bank of Canada now turning dovish on the back of softer economic data.

Tal says that, by almost every measure, the Canadian economy is weakening, and will probably do so into the new year. He cites such headwinds as oil pipeline problems, soft business investment, global trade woes and a housing market in the midst of an adjustment.

Still, in light of an OPEC production cut and some recovery in non-energy business investment, CIBC maintains its call for two rate hikes in 2019. With plenty of risks, however, the probability of only one move is “much higher” than three moves, Tal adds.

BMO has changed its call from three hikes in 2019 to two, in April and October. Referring to last week’s speech by Bank of Canada governor Stephen Poloz, a weekly BMO report says that the best reason for central bank caution is the expected “big hit” to growth from Alberta oil production cuts.

“We’re now looking for Canadian Q1 GDP growth of 0.5% to 1%,” says rates and macro strategist Benjamin Reitzes in the BMO report. “If there’s any hiccup at all in other sectors […], there’s a non-trivial possibility that Q1 GDP could be negative,” he says.

TD has likewise downgraded its view to two hikes from three, “in light of the recent domestic risks that have emerged and some unexpected weakening in economic momentum,” it says in a central bank outlook reportRBC also calls for two hikes next year, in Q2 and Q3.

In contrast, National Bank forecasts three hikes next year, starting in Q2, as does Scotiabank.

“We still forecast a return to a neutral stance, leading the BoC to raise rates to 2.75% by 2020 Q1 once it resumes hiking in April next year,” says a Scotiabank outlook report.

Read the full reports from CIBC and BMO, as well as from TD, RBC, Scotiabank and National Bank. staff


The staff of have been covering news for financial advisors since 1998.