National Bank says the central bank has ‘free option’ to raise the rate next week

One more bank joins the list of those who expect the Bank of Canada to start raising its key lending rate as soon as next week.

National Bank of Canada now predicts a 0.25% rate hike from the BoC to 0.50%, while earlier it expected the first increase in March.

“With today’s employment growth and inflation hikes, we believe that immediate rate increase is appropriate even amid the Omicron situation,” – strategists Warren Lovely and Taylor Schleich said.

The market has been moving in the same direction, especially following the recent inflation report showing Statistics Canada’s consumer price index going up last month at the fastest pace since September of 1991. Earlier this week, the central bank’s poll showed that two-thirds of business leaders expect inflation to rise above 3% during the next two years.

“Following the BoC’s Business Outlook Survey and CPI report, for the first time in the COVID era, markets and economists are giving the Bank a ‘free option’ to raise its overnight rate,” – Lovely and Schleich added.

On Thursday morning, market reported a 71% probability of a rate increase next Wednesday, while it was only 52% a week ago.

In addition to it, investors also predict at least 5 rate increases in 2022, which coincides with the National Bank’s forecast of a 1.5% rate by the end of this year.