Bank of Canada is able to end interest rate hikes ahead of the U.S.

Economists believe the Bank of Canada has a possibility to end its interest-rate increasing cycle in the nearest future even if the Federal Reserve continues to raise its borrowing costs in 2023.

According to the recent poll by Bloomberg, the Governor Tiff Macklem and his team have a possibility to keep their overnight rate 1% below the level the U.S. will reach.

More than half of the 16 economists surveyed say the BoC will not end up signaling a rate-hike pause. However, Macklem is still expected to stop raising rates after this month’s meeting or in January, which will leave us with the key lending rate at 4.25%.

Markets in the U.S. predict a rate increase by the Chairman Jerome Powell to 4.75-5%.

That difference in forecasts means that Macklem has certain flexibility in setting the final point for the Bank’s aggressive rate increase cycle, as soon as the pace of the domestic economy growth begins to slow down.

The results of the Bloomberg poll were divided in terms of whether the central bank will raise its key lending rate by 0.25% or by 0.50% next Wednesday. It looks like Friday’s job report will play a vital role in this decision.

As you know, the BoC has already raised the overnight rate from 0.25% in March to the current 3.75%. Last time, it surprised many by choosing a half per cent increase, following a 0.75% hike in September and a 1% increase in July.

The Bloomberg survey was conducted during the period from Nov. 25 to 30.

Here are some other findings from the survey:

• According to 94% of respondents, Canada’s economy is more vulnerable to interest-rate increases than the U.S.
• Half of economists consider the BoC’s latest economic growth forecasts too optimistic.
• Economists believe the central bank will begin to reduce the key lending rate in October 2023
• Almost 80% say the government of Canada’s spending isn’t affecting the BoC’s attempts to restrain inflation.