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All eyes will be on the Bank of Canada’s interest rate decision this week, which some say could be its last increase of the year, and perhaps of this rate cycle.

Markets are pricing in a 75-bps hike, which would bring the Bank of Canada’s overnight rate to 3.25%, just above its 2%-3% “neutral” range and into restrictive territory.

If that happens, economists from CIBC, TD Bank and National Bank of Canada believe this could be the central bank’s last rate hike of this cycle, with the overnight sitting at 3.25% through to the end of 2023.

However, some aren’t ruling out the possibility of the Bank surprising markets again, as it did in July, with a second outsized rate hike of 100 bps on Wednesday.

RBC economists Nathan Janzen and Claire Fan wrote that, while they expect a 75-bps rate hike, “the Bank’s commitment to front-loading rate hikes in the face of red-hot inflation means an even bigger 100-bps increase (matching July’s hike) can’t be ruled out.”

Economist Taylor Schleich at NBC agrees, writing that, following July’s surprise 100-bps hike, “we’re certainly more cognizant of the risk of a second straight 100-basis-point interest rate hike and we think it’s a greater risk than is broadly appreciated.”

The following is a collection of comments and analysis pertaining to the BoC’s upcoming rate decision on Wednesday:

On what happens after this week

  • NBC: “While we could realistically see the BoC raise its policy rate anywhere from 0.5% to 1.0%, uncertainty is just compounded thereafter. As we’ve argued before, there’s a case to be made for pausing the tightening once definitively into restrictive territory. But given the increasingly hawkish central bank rhetoric globally, our conviction here has waned and we view the odds of additional hike(s) in Q4 as meaningfully higher.”
  • Scotiabank: “Calling a rate peak [this] week would…require such (false) comfort as the resulting post-75 policy rate of 3.25% would barely push into restrictive territory, only by assuming that the neutral rate range is still 2–3% when it may well be higher now by, say, guessing that we should add 50bps to the bottom and top ends of the range. It would also leave any definition of the real policy rate still in negative territory and hence stimulative on both counts. My preference would be getting to a 4-handle on the policy rate in order to have more comfort that the BoC is doing enough on inflation, and then we’ll see.” (Source)

On the impact on trigger points

  • Ben Rabidoux: Mortgage borrowers “with the best deeply discounted rates will begin to hit payment triggers if the Bank of Canada raises rates another 50 bps [this week]. But, for the average rate of [borrower] pool as a whole, the trigger is closer to 100 bps from current levels.” In his latest Edge Realty Analytics newsletter, Rabidoux says the pool of originations that need to be monitored are those from March 2021 to February 2022, which he estimates amount to $261 billion, or roughly 15% of outstanding mortgage debt.

On what to look for in the BoC’s statement

  • NBC: “While there’s no shortage of uncertainty on the headline decision, we’ll be just as closely watching the guidance provided in the statement. In recent decisions, the statement has read: “The Governing Council continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.” With an-already restrictive policy setting (after the assumed hike), the retention of this line would, of course, be unambiguously hawkish. Alternative, less aggressive (and perhaps more likely?) guidance might read something like: “Governing Council judges that rates may need to increase further.”


  • CIBC: “While growth in Q2 as a whole was solid at an annualized +3.3%, and little changed from Q1’s pace, it was disappointing relative to consensus expectations (+4.4%) and was largely driven by an acceleration in early spring…While we still expect that the Bank of Canada will hike interest rates further to combat high inflationary pressures, a cooling economy supports our view that the peak will be lower than financial markets have been pricing in.” (Source)

On how the BoC’s rate tightening compares globally

  • BMO: “While advanced world central banks have been travelling at slightly different speeds, they are all moving rapidly in the same direction—save Japan. If the Bank of Canada meets market expectations at next week’s decision with a 75-bps hike, it will re-take the leadership as the most aggressive hiker among the G10, with the highest overnight rate (3.25%) and the biggest cumulative move this year (300 bps).” (Source)

On rate cuts

  • CIBC: “As for rate cuts, we’d need a recession, or two years of soft growth, to open up enough economic slack to justify any steps to ease off on monetary policy.” (Source)

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate:
Year-end ’22
Target Rate:
Year-end ’23
Target Rate:
Year-end ’24
5-Year BoC Bond Yield:
Year-end ’22
5-Year BoC Bond Yield:
Year-end ’23
BMO 3.50% (+25bps) 3.50% NA 3.20% (-15bps) 3.00% (-20bps)
CIBC 3.25% 3.25% NA NA NA
NBC 3.25% 3.25% NA 3.20% 3.00%
RBC 3.50% (+25bps) 3.25% (+25bps) NA 2.80% 2.40%
Scotia 3.50% 3.50% NA 3.30% 3.00%
TD 3.25% 3.25% NA 2.85% 2.55%

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