Bank Of Canada Likely To Hike Before The US Fed In 2022

• The Bank of Canada (BoC) is expected to begin raising its benchmark interest rate from 0.25% currently, in Q1 2022 as the central bank unwinds stimulus implemented during the Covid-19 pandemic and inflation remains above target. 
• In 2021, the BoC held at 0.25% throughout the year, but wound down its asset-purchasing programme in October, in contrast with the ongoing quantitative easing conducted by the US Federal Reserve (Fed), the European Central Bank and the Bank of Japan. 
• In December 2021, seasonally adjusted inflation rose to 4.8% y-o-y, a multi-decade high. While Fitch forecast inflation will slow throughout 2022 and end the year at 2.3% as supply chain disruptions easeand commodity prices fall, the central bank will likely hike in H1 2022 to help contain inflation expectations. 
• The agency forecasts that the BoC will hike to 1.00% by end-2022 and 1.50% by end-2023, a more hawkish view from previous forecasts of a single 25 bps hike each year. 
• Risks to Fitch’s view are weighted to the upside, particularly if the US Federal Reserve raises the fed funds rate at a faster pace than is currently expected or inflationary pressures persist throughout 2022. 

 

(Source: Fitch Solutions)