Bank of Canada on hold as growth proves weaker than expected - Central Banking

Bank of Nova Scotia

According to a leading economist at the Bank of Nova Scotia, the Bank of Canada will raise its benchmark interest rate four times in the second half of next year and four more times in 2023.

According to Scotiabank's Derek Holt, policymakers led by BoC's Governor Macklem will begin a series of eight 25-basis-point raises in July of next year.

Following that, there will be moves in September, October, and December. The pace of tightening would then decrease, with quarterly adjustments in 2023 pushing the policy rate to 2.25% by the end of that year, according to Holt.

Holt's ambitious projection came as Statistics Canada revealed that yearly inflation touched 4.4% in September, the highest level since February 2003 and the sixth month in a row with readings over the central bank's target zone.

TD Securities

Inflation persistence will be something to look out for in the Bank of Canada's announcement this week. TD Securities stated that market-based metrics have shown a significant repricing of interest rate hikes in response to rising inflation fears, with the OIS curve currently pricing in three rate hikes by the summer of 2022.

TD does not expect the central bank to act soon, but it does expect the bank's announcement to "highlight upside risks, balanced against the progress that has been accomplished to date on closing the production gap and bringing the economy to full employment."

Previous Rate Decision Comments


We are committed to keeping the policy interest rate at the effective lower bound until the slack in the economy is absorbed and the 2% inflation objective can be met sustainably. Inflationary influences are projected to be temporary, but their persistence and magnitude are unknown and will be constantly studied. CPI inflation is still above 3%, thanks to base-year impacts, high gasoline costs, and supply constraints. We are retaining its exceptional forward guidance on the o/n rate path.

Current Economy And Future Estimates 

The economy is expected to rebound in the second half of 2021, despite the fourth wave of COVID-19 infections and continued supply difficulties, which might weigh on the recovery. In the second half of 2022, economic slack will be absorbed. Financial conditions are still very favourable.