The latest in mortgage news: BoC rate hike expectations grow

  5/12/2022 |   SHARE
Posted in Interest Rates by Russell Pearsall | Back to Main Blog Page

Interest Rates

The Big 6 banks have raised their expectations for Bank of Canada rate hikes, with most expecting another 125 to 150 basis points in tightening by the end of the year.

RBC was the latest to revise its expectations, matching Scotiabank’s call that the Bank of Canada’s key lending rate will reach 2.50% this year. However, RBC sees the Bank’s rate hikes being fully front-loaded to 2022, meaning it expects no additional hikes in 2023. Scotiabank, meanwhile, has penciled in another 100 bps worth of hikes next year, which would bring the overnight target rate to 3%.

An overnight rate of 2.50% would be right in the middle of the Bank of Canada’s updated neutral range of 2% to 3%. The last time the overnight target rate was above 2% was back in 2008 during the Global Financial Crisis.

“We find ourselves once again revising our central bank forecasts higher, both accelerating the pace of tightening previously expected and lifting terminal rates for this cycle,” wrote Josh Nye, senior economist with RBC Economics. “That said, we maintain the view that in most jurisdictions market pricing is too aggressive—particularly in 2023—as late-cycle growth concerns and inflation that is starting to slow will eventually see policymakers tone down their hawkishness.”

Nye said there is reason to believe the BoC and the Fed will front-load their rate hikes earlier in this cycle, since it can take up to six to eight quarters for changes in monetary to have their full effect on the economy.

Latest rate forecasts

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate: Year-end ’22; Target Rate: Year-end ’23 ; Target Rate: Year-end ’24 5-Year BoC Bond Yield: Year-end ’22 5-Year BoC Bond Yield: Year-end ’23
BMO 2.25% (+25bps) 2.75% (+25bps) NA 2.90% (+30bps) 2.90% (+20bps)
CIBC 2.25% 2.50% NA NA NA
TD 2.50% (+75bps) 2.50% (+50bps) NA 2.90% (+70bps) ; 2.30% (+25bps)
NBC 2.00% 2.00% NA 2.60% 2.60% (+25 bps)
RBC 2.50% (+50bps) 2.50% (+50bps) NA 2.60% (+40bps) 2.20% (+25bps)
Scotia 2.50% 3.00% NA 3.00% 3.10%

Source: Canadian Mortgage Trends

Bank of Canada Benchmark Rate, Big Six, Interest Rates

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