BOC - Bank of Canada

BOC - Bank of Canada


21-OCT-2022


BOC ANNOUNCEMENT (WED): The Bank of Canada is expected to hike rates by 50bps at its October meeting, according to the latest Reuters survey, which was conducted before the September CPI data. Money markets, in wake of CPI, are now leaning towards a 75bp hike with a 70% probability - so it is a close one for either a 50bp or another 75bp hike. The Economists surveyed by Reuters saw 27/30 expect a 50bp hike while the remaining three expect a 75bp hike. The latest CPI data was hotter than expected on all fronts with Y/Y rising 6.9% (exp. 6.8%) but decelerating from the prior 7.0% while the M/M rose 0.1%, hotter than the expected unchanged print. The Core Y/Y rose 6.0%, accelerating from the prior 5.8% while the M/M rose 0.4%, accelerating from the unchanged reading in August. The average of the BoC-eyed measures also ticked up. The inflation report saw a hawkish move in market pricing with Canadian interest rate futures now implying a 75% chance of a 75bp hike next week, vs a 30% probability before the hot inflation. Recent commentary from Governor Macklem noted if the recent CAD depreciation against the Dollar persists, we are going to have to do more work on interest rates. Looking ahead, the terminal rate is expected to reach 4.25% in Canada, up from the prior 3.50% in the prior Reuters poll with nearly all respondents saying risks are skewed towards a higher peak rate. However, since the inflation data, money markets are currently pricing a peak rate of around 4.50% in April, up from the prior 4.33% ahead of the data. It is also worth noting the Fed is widely expected to hike by another 75bps in November, and given Macklem's commentary on the FX rate, coupled with rising inflation expectations in the BoC Business Outlook survey, and hot inflation data, the argument has been building for a 75bp hike. ING also suggests a further 75bp hike, given the upside in inflation, is the most likely outcome. However, it is worth highlighting the latest business outlook survey was quite somber, noting business confidence has softened and most think a domestic recession is likely within 12 months while many are expecting slower sales growth as rates increase and demand slows.