February 1, 2023

With modest conviction we expect a 25bps hike – Scotiabank

The Scotiabank Research Team offers a sneak peek at what to expect from Wednesday’s Bank of Canada (BoC) interest rate decision, which could stir the CAD markets.

Also read: Bank of Canada Preview: The final one, with a pause ahead?

Key quotes

“The Bank of Canada weighs in with a full suite of communications this Wednesday including an updated policy statement and Monetary Policy Report with fresh forecasts (10am ET) followed by the 11am ET press conference hosted by Governor Macklem and SDG Rogers. This will also be the first time that the BoC releases meeting minutes two weeks later on February 8th and a day after Macklem speaks in Quebec City. The timing puts the minutes between the BoE’s release on the same day and the Fed’s release three weeks after meetings.”

“Markets are almost fully priced for a 25bps rate hike. All of the big domestic banks’ economics shops expect a 25bps hike including the Scotia Economics house view.”

“It is with modest conviction that we expect a 25bps hike.

“I would assign 55% odds to a 25bps hike, 35–40% odds to a pause and we can’t fully shut the door to a hawkish surprise as a low probability but high impact tail risk.”

“Part of the reason for that is that the BoC surprises in both directions when it (often) chooses to surprise.”

Deputy Governor Kozicki said on December 8th that “We are still prepared to be forceful” which is code language for a larger-than-normal rate hike “If there were to be a very large shock.” What has happened since probably doesn’t qualify, but it was after she spoke that over 100k jobs were created in a single month and forecasts for US GDP growth began to be revised sharply higher with implications for spillover effects into Canada’s economy.”

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