Bank of Canada to raise rates to 3 next year, probably soon: Reuters poll by Reuters

Reuters. File photo: Bank of Canada Governor Tiff McCallum attends a Bank of Canada event on October 7, 2021, in Ottawa, Canada. REUTERS / Blair Gable / File Photo

Written by Mummal Rathore

BENGALURU (Reuters) – The Bank of Canada will raise rates early in the third quarter of next year, at least three months earlier than previously expected, according to economists surveyed by Reuters who see the risk as the rise could come sooner.

Just last month economists were almost equally divided on the high rate of risk; Now almost everyone is saying hurry without delay.

This change is being increasingly shared by forecasters around the world, based on intense inflationary pressures – due to global supply chain disruptions, labor shortages and rising energy costs.

“As global inflationary pressures continue, the story of Canada’s activity is getting stronger, and the job market is getting stronger faster than other countries. Economist.

This view is in line with the central bank’s latest business outlook survey, which reports to agencies that strong demand is expected as the Covid-19 epidemic fades, but supply constraints threaten to limit sales and increase costs.

Canada’s inflation rate accelerated to an 18-year high of 4.4% last month, due to high gas prices, rising housing costs and rising food prices, forcing the BoC to consider long-term hiking rates.

Although a moderate view of economists in an October 18-22 survey shows that the BoC will maintain an unchanged rate of 0.25% in the first half of next year, the rate is expected to increase by 25 basis points to 0.50% in the third quarter.

Financial market traders are raising prices in early April.

Economists predicted a sharp rise in Q3. But the risk to their expectations was clear: 90% of respondents, or 18 out of 20, said a BoC move would come sooner rather than later.

The big difference

Based on a small sample of respondents, the BoC then forecast growth at 0.75% in the first quarter of 2023 and 1.25% at the end of the year.

If the poll is correct, the BoC will significantly detach from the US Federal Reserve, which is expected to keep rates unchanged until the end of next year. [ECILT/US]

Stephen Brown, a senior Canadian economist at Capital Economics, said: “The big difference between the two countries is that employment in Canada is now back to pre-epidemic levels, whereas in the United States it is not.”

Inflation will remain above the central bank’s target and is expected to rise to 4.1% this quarter, from 3.1% projected three months ago. Each quarter of the following year it was forecast to average between 2.2% and 3.7%, easing. But next year’s 2.5% average forecast rose to 2.2% in July.

Benjamin Tal, deputy chief economist at CIBC Capital Markets, said: “The second wave of inflation in 2022 will be much more exciting, where we will see some rising wages as well as human demand for spending money.”

“Semi-normal would be more risky inflation for me because it would be demand-driven, and if it were, you would like to see the response from the Bank of Canada and the Fed,” said Tal, who expects both central banks to rate in the second half of 2022. Will increase.

This year growth was expected to take a hit. The export-driven economy is expected to grow an average of 5.0% this year, a sharp downgrade from 6.2% three months ago. For the next year, it was expected to grow 4.0% unchanged from the previous poll.

The BoC will reduce its asset purchase activities from its current C $ 2 billion to C $ 1 billion at its October 27 meeting, the survey found. This is the time when the bank will provide its quarterly updates on growth and inflation.

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