The Bank of Canada’s next overnight rate announcement is Wednesday December 7, with most market watchers expecting another increase, the seventh this year..There's speculation on the size of the increase and whether the bank will put a halt to the increases come the new year..Nathan Janzen and Carrie Freestone, in a co-authored report for RBC Economics, expect a small increase..“The Bank of Canada won’t hit the brakes on interest rate increases next week, but it is likely to slow them down,” they write. “We expect a 25-basis point (bps) increase in the overnight rate to 4% from the central bank, smaller than the 50-basis point hike in October.”.“However, the bank has been clear another larger 50 bps hike is also a possibility. But there are tentative signs broader inflation pressures have peaked. And these have emerged even before the full impact of earlier rate hikes on the economy has been felt.”.“It takes time for higher interest rates to feed through to household mortgage payments as fixed-rate contracts are renewed,” say Janzen and Freestone. “Governor Macklem in October highlighted the need to balance the risks of both under- and over-tightening monetary policy and the economic growth backdrop is widely expected to deteriorate. Our outlook foresees a moderate recession in the first half of next year.”.More important than the size of the interest rate hike is how many more could follow. .“The answer to that question depends on inflation,” write the authors. “Both the bank’s preferred median and trim ‘core’ CPI measures have shown signs of moderation in recent months and the breadth of inflation pressures has slowed.” .“Inflation is still running well above the 2% target rate, but a 4% overnight rate is likely enough to slow economic growth and inflation pressures further. The bank will almost certainly, and correctly, keep the option to hike interest rates further if necessary. But our own base case expectation is that December will mark the last rate hike of this cycle.”.Bloomberg sought the opinions of 16 economists between Nov. 25 and 30, with most agreeing the bank can afford to put a stop to the interest rate-hike cycle in the coming months, even if the US Federal Reserve decides to keep raising borrowing costs next year. .In Canadian Mortgage Professional, most of the economists surveyed said Macklem can leave the interest rate a hundred basis lower than its counterpart benchmark rate in the US without having to break a sweat, with more than half saying the bank would not signal a pause just yet. .Respondents were equally split on whether the bank would announce a 25-basis point or 50-basis-point increase at its meeting. Most believe jobs creation data, which was unexpectedly high in October, would be key to settling the question..CIBC Capital Markets deputy chief economist, Benjamin Tal, believes the bank will increase the rate by 50-basis-points this go-round, predicting it will be the last hike for quite some time..“This hike will be followed by a year-long period of rest in 2023 as the Bank of Canada assesses whether inflation was gone for good,” says Tal..Tal then expects the bank to leave borrowing costs at 4.25%, before cutting the overnight rate by October next year.
The Bank of Canada’s next overnight rate announcement is Wednesday December 7, with most market watchers expecting another increase, the seventh this year..There's speculation on the size of the increase and whether the bank will put a halt to the increases come the new year..Nathan Janzen and Carrie Freestone, in a co-authored report for RBC Economics, expect a small increase..“The Bank of Canada won’t hit the brakes on interest rate increases next week, but it is likely to slow them down,” they write. “We expect a 25-basis point (bps) increase in the overnight rate to 4% from the central bank, smaller than the 50-basis point hike in October.”.“However, the bank has been clear another larger 50 bps hike is also a possibility. But there are tentative signs broader inflation pressures have peaked. And these have emerged even before the full impact of earlier rate hikes on the economy has been felt.”.“It takes time for higher interest rates to feed through to household mortgage payments as fixed-rate contracts are renewed,” say Janzen and Freestone. “Governor Macklem in October highlighted the need to balance the risks of both under- and over-tightening monetary policy and the economic growth backdrop is widely expected to deteriorate. Our outlook foresees a moderate recession in the first half of next year.”.More important than the size of the interest rate hike is how many more could follow. .“The answer to that question depends on inflation,” write the authors. “Both the bank’s preferred median and trim ‘core’ CPI measures have shown signs of moderation in recent months and the breadth of inflation pressures has slowed.” .“Inflation is still running well above the 2% target rate, but a 4% overnight rate is likely enough to slow economic growth and inflation pressures further. The bank will almost certainly, and correctly, keep the option to hike interest rates further if necessary. But our own base case expectation is that December will mark the last rate hike of this cycle.”.Bloomberg sought the opinions of 16 economists between Nov. 25 and 30, with most agreeing the bank can afford to put a stop to the interest rate-hike cycle in the coming months, even if the US Federal Reserve decides to keep raising borrowing costs next year. .In Canadian Mortgage Professional, most of the economists surveyed said Macklem can leave the interest rate a hundred basis lower than its counterpart benchmark rate in the US without having to break a sweat, with more than half saying the bank would not signal a pause just yet. .Respondents were equally split on whether the bank would announce a 25-basis point or 50-basis-point increase at its meeting. Most believe jobs creation data, which was unexpectedly high in October, would be key to settling the question..CIBC Capital Markets deputy chief economist, Benjamin Tal, believes the bank will increase the rate by 50-basis-points this go-round, predicting it will be the last hike for quite some time..“This hike will be followed by a year-long period of rest in 2023 as the Bank of Canada assesses whether inflation was gone for good,” says Tal..Tal then expects the bank to leave borrowing costs at 4.25%, before cutting the overnight rate by October next year.
