BoC Preview: Forecasts from four major banks

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, January 25 at 15:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of Four major banks, regarding the upcoming announcement.

Wells Fargo

“Recent activity data have been mixed, suggesting an end to the central bank’s tightening cycle may not be that far away. With core inflation yet to show a more meaningful deceleration, we believe that could be enough for the BoC to deliver one final 25 bps policy rate increase to 4.50%. We expect the policy interest rate to remain at that level through most of this year before the BoC begins cutting interest rates in the final quarter of 2023.”

Citibank

“We expect another 25 bps hike to 4.50% with the updated policy statement likely to describe both growth and the labor market as having evolved somewhat stronger than expected, although with increasing concerns over softer activity as shown in the Q4 Business Outlook Survey. While there is a possibility that the BoC could show some preference for pausing rates and assessing how economic conditions evolve, we expect only very minor changes to guidance and their base case remains for another 25 bps hike in March, although highly data-dependent.”

Standard Chartered

“We now expect the BoC to raise the policy rate by 25 bps to 4.5%. We expect the BoC to be careful about signalling future hikes while not precluding them. This is largely in line with market expectations, so we do not expect a big CAD reaction. The CAD could fall if BoC Governor Macklem signals that the BoC hiking cycle is over, but we think he will most likely indicate that the hiking cycle is close to a peak, and not rule out future hikes in case they are needed.”

TDS

“We look for the BoC to hike by 25 bps and we expect this will be the last hike this cycle (though the forward-looking component will not preclude future hikes). While this is expected to be the last hike, the CAD may not receive much directional bias from this meeting as the curve may continue to be biased about looking at the other side of this interest rate cycle. That said, the CAD may be more sensitive to any dovish elements should the BOC emphasize elements from the BOS. We see a differentiated dynamic playing out on the crosses given risk correlations.”