BoC to Keep Up Pace With 50 Basis Point December Rate Hike

  • The Bank of Canada will hike its key interest rate by another 50 basis points to 4.25% on Dec. 7, according to a slim majority of economists in a Reuters poll that suggests the central bank will then hit pause on a nine-month tightening campaign.
  • An economy that grew at a solid annualized 2.9% rate in the third quarter is increasingly at risk from a falling property market and one of the highest household debt-to-income ratios in the world, with the full effect of rate rises yet to be felt.
  • Inflation, at 6.9% in October, is still running over three times the central bank's 2% target. That has left economists and markets at odds over whether the BoC, which has raised rates by 350 basis points since March, will opt for another half-point move and aim to wind up an aggressive campaign before an expected recession set in.
  • Just over half, 16 of 30, of the economists polled over the last few days expected a half-point rise on Dec. 7 to 4.25%, matching a move in October and in line with current expectations for theĀ U.S. Federal Reserve's December meeting.
  • Fourteen said the BoC would dial down its pace to 25 basis points. Markets are pricing in an over 80% chance of 25bps, which would be a third straight reduction in rate hike size by policymakers from a peak of 100 in July.
  • Although there was no clear consensus on when the overnight rate would peak, around 90% of respondents, or 26 of 29, predicted a terminal rate of 4.25% or higher, suggesting the BoC may be done in December and if not, soon afterwards.
  • With inflation expected to stay above the BoC's target for the coming year, 10 of 13 economists who answered an additional question said the bigger risk was also that rates reach a higher peak, and later than they currently expect.

(Source: Reuters)