Interest rates

Bank of Canada to hike interest rates by third quarter of next year, economists say

A growing minority of economists expects a first increase at the end of June

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BENGALURU – The Bank of Canada will hike interest rates by the end of the third quarter of next year, according to nearly every economist polled by Reuters, with a growing minority expecting a first hike as early as the end of June.

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These expectations, based on the idea that inflation is less transient than previously thought, come despite the emergence last month of the Omicron variant of the coronavirus, which has clouded the outlook for economic recovery around the world.

More than 95% of economists, 26 out of 27, expected at least one increase by the end of the third quarter of 2022, from November 29 to December 31. 3 Reuters polls found.

That’s much more conclusive than a poll in October when economists were divided over the odds of a third quarter hike. Now, 19 of the 20 common contributors expect at least one increase by the end of September compared to 11 in the October poll.

The 29 contributors expected the Bank of Canada to keep rates unchanged at 0.25% at its December 8 meeting.

“The Bank of Canada will hike rates in the third quarter of 2022 … the high inflation rate is putting pressure on the Bank of Canada and the Fed, but there is a reluctance to raise rates and risks delaying the recovery,” said Brendan LaCerda, senior economist at Moody’s Analytics.

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“As such, the start of 2022 is the critical moment. If all goes as planned and the inflation cools, the pressure to act dissipates. If not, we expect the schedule of rate increases to advance significantly. “

Canada’s annual inflation, at a 18 years old , has aligned a sizable minority of economists with more aggressive pricing in the interest rate futures markets.

About 45% of those polled, or 13 of 29, expected at least one rate hike by mid-2022, while no one expected such a move in the October poll.

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“The economy is growing strongly and inflation will soon exceed 5%,” said James Knightley, chief international economist at ING, who expected a first hike as early as next quarter and four rate hikes. by 25 basis points in 2022.

“We are reluctant to make changes to this view at this time given the uncertainty over Omicron, but the clear risk is that the BoC will end up delaying the first hike until the second quarter if consumer cautiousness ends. triggers in the face of anxiety related to COVID. “

Asked in a supplemental question when the BoC should hike rates, half of 18 economists said July 2022.

“At this point, there is still a lot of uncertainty about how the new COVID variant might alter the near-term outlook. This could keep inflation high by disrupting global supply chains, while reducing the growth in consumption of services in Canada, ”said Avery Shenfeld, CIBC.

“A rate hike around mid-2022 might be appropriate, but these new clouds on the horizon mean the Bank should avoid being too specific at this point about when it sees the first hike coming.”

© Thomson Reuters 2021

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