What forecasts do economists have on this Wednesday’s rate decision by the Bank of Canada?

This Wednesday, the central bank will announce its new interest rate decision and the majority of economists don’t predict any changes.

As you know, the Bank of Canada’s key lending rate has remained unchanged at 4.50% since January. While there are certain experts calling for another rate increase on Wednesday and with even higher odds next month, the average forecast of economists polled by Bloomberg says no changes this time.

“We believe there will be a pause this week, but a rate increase will not shock us either,” – Benjamin Reitzes from BMO Capital Markets noted.

He named Canada’s strong GDP, which showed an annual increase of 3.1% in the first quarter of this year, and heightened housing activity as the main economic data points the BoC will take into account making its next decision on Wednesday.

Reitzes warns that if the economy keeps its pace and exceeds the Bank’s target level of 2%, additional tightening will be necessary.

“BMO now predicts a 0.25% rate increase in July, as the economy isn’t expected to show significant changes during the next six weeks,” – he explained.

Desjardins’ economists are also expecting a rate pause this week, although they see a higher chance of rate hikes in the nearest future.

RBC economists also share this opinion.

“More signs that higher interest rates aren’t slowing the economy as well as planned would increase the possibility of a hike next month,” – Claire Fan, economist at RBC, said.

In her opinion, right now the central bank will probably keep the rate unchanged as it’s waiting for more data on inflation and the Business Outlook Survey.

Meanwhile, there are certain prominent economists calling for a rate increase on Wednesday.

The first one to call for a 0.25% rate hike this month was Barclay’s economist Veronica Clark.

She believes not enough measures were taken to restrain inflation, which still exceeds the target rate of 2% sharply.

According to Scoitabank’s chief economist Jean-François Perrault, April’s stronger-than-expected inflation is a call to action for the Bank.

Stephen Brown, senior Canada economist with Capital Economics, also shares this opinion.

“As GDP growth and CPI inflation have exceeded the central bank’s forecasts, we now believe it will increase interest rates this week rather than wait until July,” – Brown noted.

He says the market is underestimating the level to which the BoC may raise its overnight rate, especially it if raises it this week and provides a hawkish sentiment.

He says the BoC could raise the key lending rate to 5.0% by July.