Big banks forecast next BoC rate hike

The Bank of Canada makes a rate decision on Wednesday, but no one’s calling for an increase—certainly none of the big banks.

The banks do, however, have plenty to say when it comes to forecasting when the next hike will occur.

• BMO strategist Benjamin Reitzes suggests the hike could come sooner than later. In a weekly economics report, he says if there’s “another drop in the jobless rate and a further upturn in wage growth in December, the BoC will have more to think about ahead of the January meeting.”

Read: Unemployment rate drops to 5.9% as economy grows

• Likewise, National Bank says in a weekly economics report that it expects Wednesday’s monetary policy meeting to “open the door for a rate hike on January 17, 2018.” National Bank bases its forecast on “impressive” economic data, such as GDP numbers and low unemployment.
• Also in a weekly economics report, CIBC economists say, “A stand-pat stance is likely on the menu, particularly with NAFTA risks mounting.” Though the BoC says identified risks have eased, that “doesn’t change our outlook that the [central] bank is on hold for now, with the loonie selling off further in the coming months.”

In an earlier report, CIBC forecasted April 2018 as the next rate hike.

• In a market update, RBC says, “Our forecast now assumes the BoC will remain on the sidelines for the next couple of meetings before resuming a tightening cycle in the second quarter of 2018.” That forecast has in turn “prompted us to lower our Canadian dollar forecast, with the currency now expected to dip to 75 U.S. cents early next year before recovering as the BoC resumes raising rates.”
• A weekly Scotiabank report says the bank has a “still cautious overall bias.” More specifically, Derek Holt, vice-president and head of capital market economics, says, “The BoC pause story continues to be informed by a heavy—though varying, and at times frustratingly so—emphasis upon various uncertainties that are clouding the outlook. With those uncertainties, I certainly wouldn’t push current [overnight index swap] market pricing further than at present.”

Read: Poloz explains temporary drag on inflation

Scotiabank fixed income research indicates odds of a December hike are less than 20%; a January 2018 hike, less than 40%; a March 2018 hike, more than 80%; and an April hike, 100%.

• TD economist Dina Ignjatovic says in a weekly economics report, “Strength in the domestic economy, characterized by solid job and wage gains, appears supportive of higher rates, with a rate hike likely in the coming months.”

Staff

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