BoC hike predictions from the Big Five banks

Out of the Big Five banks, only one is confidently calling for a Bank of Canada rate hike this week. But the other four aren’t discounting the possibility entirely — after all, the BoC has surprised in the past.

Check out the banks’ forecasts below.

Scotiabank: Get ready for September hike

Derek Holt, vice-president & head of capital markets economics, is firm in his view that the BoC will make a move. In an August 31 research note, he says, “Scotiabank Economics expects the Bank of Canada to raise its overnight rate by 25bps next Wednesday in a statement-only affair.”

He adds, “We expect a neutral-hawkish bias in a nod to how there are further hikes to come beyond simply unwinding the two 25bps cuts in 2015. We believe the central bank remains on the path toward raising its policy rate by about one full percentage point by the end of next year in a more front-loaded set of moves — and likely more increases than priced in by markets through 2018.”

Why? Holt points to growth that’s blowing Canada’s peers out of the water. “The economy has surpassed everyone’s expectations by leaps and bounds, and especially in the case of the perma-bears. […] It remains debatable whether the BoC should have eased policy in 2015 in response to the commodity-induced terms of trade shock.”

TD: A hike in October, followed by two in 2018

The odds of a rate increase this week edged up on the back of recent GDP data. But, in its weekly bottom line report, TD says it would be surprised by a BoC move.

Read: GDP strength could lead to BoC September hike

“We do expect the rate hiking cycle to continue though, with a 25 basis point hike in October, followed by two more in 2018,” the bank predicts.

RBC: October more likely than September

In an August central bank watch report, RBC calls for a later bump in rates. It says, “While another move in September can’t be completely ruled out given upside risk to the bank’s growth forecasts, we expect the next hike will come in October.”

In its September research report, the bank doesn’t comment on the timing of the BoC’s hikes. It does, however, suggest indebted households will be under pressure. “With economic growth continuing to clock in at a stellar pace, additional policy hikes and the ensuing rise in borrowing rates will put pressure on households to absorb rising costs,” says RBC.

BMO: No hike expected, but don’t underestimate the BoC

In a September 1 focus report, BMO refers to Canada’s “piping hot Q2 result” for GDP, which fired up BoC hike expectations. Still, the note says, “We still lean to no-move just yet […], but no one would be shocked if the Bank did pull the trigger early—the market is almost 50/50 on the prospect.”

CIBC: 1% rates for a while, but timing of hike uncertain

Chief economist Avery Shenfeld weighs the pros and cons of a BoC hike in his latest week ahead report. “We don’t need rates this low to generate decent growth, and can ameliorate future financial system risks by easing household credit demand,” he says. With that in mind, a hike is possible.

But, says Shenfeld, we can’t be too sure which route the Bank of Canada will take. After all, if the central bank wants to keep currency at bay, it may stand pat. Consider that the BoC “wants to shrink the slice of the growth pie coming from housing and household debt, while keeping the currency at levels that will sustain exports and related capital spending.”

Whether the central bank moves in September or October, Shenfeld expects short rates to be up a quarter point by the end of year, with “the market warned that further hikes will be slow in coming.”

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