What rate increase is expected this week? What are the long-term forecasts from big banks?

On Wednesday, the Bank of Canada is expected to raise its key lending rate for the seventh time in a row.

However, experts have less certainty on the size of the next hike: will it be a 0.25% or 0.50% increase?

“Policymakers haven’t clarified it over the previous few weeks, while economic reports showed quite mixed results,” – economists from the National Bank of Canada said.

“Stronger-than-expected jobs and GDP growth combined with red-hot inflation contrast with sharply deteriorating real estate market conditions, weak household consumption, and expected indicators pointing to future inflation weakening,” – they noted.

Another rate increase will push the central bank’s overnight rate to either 4.00% or 4.25%. As a result, we’ll see a prime rate reaching 6.20% or 6.45% and marking the highest level since 2007.

“The BoC has some options in choosing the rate increase amount, but it looks like choosing between Coke and Pepsi when it comes to their potential impact on the national economy,” – CIBC economist Avery Shenfeld said. “So, if you don’t know what kind of cola Governor Tiff Macklem prefers, you can’t be sure about the outcome of the December rate decision.”

The only certain thing is that the Bank is heading toward the end of its aggressive rate-hike cycle, and each future rate decision will depend more and more on economic data.

Let’s see what the forecasters are predicting.

Rate hike size:

• CIBC: “We expect a 0.50% increase this time, but the tone of the statement will no longer guarantee more hikes.”
• RBC: “The central bank will slow down the rate-hike cycle, and this rate increase may be the last in it.”
• BMO: “We still believe the rate will go up by 0.50%, considering the unexpectedly healthy Q3 GDP report and a steady job report.”

Future rate decreases:

• National Bank of Canada: “The rushing pace of the tightening combined with the time necessary for the rate increases to show the full impact on the economy makes it normal for observers to worry. Unfortunately, we’ll see if the Bank went too far only after the fact. One thing we are sure about is that the real estate market now shows a significant slowdown causing an extremely sharp deflation. In our opinion, there’s no need to keep the rates high for a long time to tame inflation, that’s why we expect the BoC to ease the tightening in the second half of 2023.”

Here are the recent forecasts:

 

	Target Rate: Year-end ’22	Target Rate: Year-end ’23	Target Rate: Year-end ’24	Mortgage Prime Rate: Year-end ’22/23/24
BMO	4.25%	4.50%	3.75%	6.45% / 6.70% / 5.95%
CIBC	4.25%	4.25%	3.00%	6.45% / 6.45% / 5.20%
NBC	4.25%	3.75%	3.00%	6.45% / 5.95% / 5.20%
RBC	4.00%	4.00%	NA	6.20% / 6.20% / NA
Scotia	4.25%	4.00%	3.00%	6.45% / 6.20% / 5.20%
TD	4.25%	3.25%	NA	6.60%* / 5.60%* / NA

*TD Mortgage Prime Rate is 0.15% higher than other big banks’ rates.