Central bank’s rate increase forecasts are going up

Canadian Big 6 banks have increased their forecasts for the central bank’s rate hikes. Now, most of them predict another 1.25-1.50% hike by the end of 2022.

The latest review came from RBC, following Scotiabank’s call that the Bank of Canada’s overnight rate will reach 2.50% this year. Nevertheless, RBC believes there won’t be any hikes next year, while Scotiabank expects another 1.00% increase round to 3% for 2023.

The key lending rate of 2.50% would be just in the middle of the BoC’s updated neutral range of 2-3%. The last time the overnight target rate exceeded 2% was in 2008 during the Global Financial Crisis.

“We have raised our central bank forecasts again, both increasing the pace of tightening and terminal rates for this cycle,” – noted Josh Nye, senior economist with RBC Economics. “But we maintain the view that in most markets pricing is too aggressive (especially in 2023), as late-cycle hike concerns and inflation that is starting to slowdown will make policymakers reduce their hawkishness in time.”

According to Nye, the BoC and the Fed may focus their rate hikes on this year, since it will take up to six to eight quarters for changes to have their full influence on the economy.

Here are the latest interest rate forecasts from the Big 6 banks and their Prime rates:

  Target Rate:
Year-end ’22
Target Rate:
Year-end ’23
Mortgage Prime Rate:
Year-end ’22/23
BMO 2.25% 2.75% 4.45% / 4.95%
CIBC 2.25% 2.50% 4.45% / 4.70%
NBC 2.00% 2.00% 4.20% / 4.20%
RBC 2.50% 2.50% 4.70% / 4.70%
Scotia 2.50% 3.00% 4.70% / 5.20%
TD 2.50% 2.50% 4.85% / 4.85%*

*TD Mortgage Prime Rate exceeds other banks’ offers by 0.15% as of today.

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