Main as much as this week, the percentages of an extra Financial institution of Canada fee hike had been mainly a coin toss.

However weak knowledge launched over the previous week have primarily “sealed the deal” for an additional fee maintain, economists say.

“This week’s knowledge sealed the deal, with the BoC’s Enterprise Outlook Survey weakening sharply and September inflation surprisingly tame,” BMO’s Benjamin Reitzes wrote.

“The most recent knowledge counsel that the weak spot seen via a lot of the first half of the 12 months continued into the second half,” he added. “Whereas inflation stays too excessive, there’s been a gentle deceleration which may be anticipated to proceed given the mushy financial backdrop.”

Final week, weak retail gross sales knowledge confirmed the moderating demand, which is anticipated to mood inflation going ahead.

Private consumption is anticipated to be “anemic” within the third quarter, rising by simply 1-1.5%, in line with TD Economics’ Maria Solovieva.

“The stability of dangers for the Canadian financial system is slowly swinging to the draw back as shopper confidence continues to be soured by the Financial institution of Canada’s fee hikes and elevated inflation,” Solovieva wrote.

Bond markets at the moment are pricing in over 90% odds of a fee maintain tomorrow. Looking forward to the December financial coverage assembly, markets at the moment see a 28% likelihood of an extra fee hike, though a lot knowledge shall be launched previous to then.

On inflation:

  • BMO: “The extent of inflation stays a lot too excessive for consolation, however the pattern is the BoC’s good friend right here. On condition that inflation is probably the most lagging of indicators, and the financial system is clearly weakening, we’re more likely to see ongoing disinflationary strain…there’s no want for additional fee hikes in Canada.”
  • CIBC: “Regardless that the Financial institution’s core measures of inflation stay too excessive for his or her liking, a few of the particulars inside [the latest inflation] report, mixed with the stall in financial exercise seen throughout Q2 and Q3, ought to give policymakers consolation that inflation will proceed to ease again to 2% with out the necessity for additional rate of interest hikes.”

On GDP forecasts:

  • Nationwide Financial institution: “…there aren’t any indicators of a restoration within the months forward, with shopper and SME confidence now at ranges seen solely throughout recessions…at least 43% of the impression of fee hikes has but to be felt on consumption. That is monumental, particularly as households are already exhibiting indicators of working out of steam. Towards this backdrop, mixed with the tightening of economic situations triggered by the worldwide rise in long-term rates of interest, we proceed to anticipate financial lethargy over the subsequent twelve months. We forecast progress of 1.0% in 2023 and 0% in 2024.”

On rate-cut expectations:

  • Desjardins: “Many mortgage holders will renew in 2025 and 2026 at greater rates of interest than the rock-bottom ranges they locked in at 5 years earlier. The query is how a lot greater. Ought to central bankers really wish to keep away from cooling the financial system an excessive amount of, they’ll want to cut back rates of interest earlier than hitting that wall of renewals…Finally, the Goldilocks objective also needs to permit them to start trimming charges in 2024.”
  • BMO: “We’ve diminished subsequent 12 months’s complete fee cuts to 50 bps from 75 bps on each side of the border. This displays the theme of ‘greater for longer’ amid continued financial resiliency (however much less so now in Canada) and inflation stubbornness.”

The most recent huge financial institution fee forecasts

The next are the most recent rate of interest and bond yield forecasts from the Huge 6 banks, with any adjustments from their earlier forecasts in parenthesis.

Goal Charge:
Yr-end ’23
Goal Charge:
Yr-end ’24
Goal Charge:
Yr-end ’25
5-Yr BoC Bond Yield:
Yr-end ’23
5-Yr BoC Bond Yield:
Yr-end ’24
BMO 5.00% 5.00% NA 3.90% (+20 bps) 3.35% (+25 bps)
CIBC 5.00% 3.59% 2.45% NA NA
NBC 5.00% 4.00% NA 4.30% (+65 bps) 3.70% (+50 bps)
RBC 5.00% 4.00% NA 3.90% (+40 bps) 3.30% (+30 bps)
Scotia 5.00% 4.00% (+25bps) 3.25% 4.30% (+55 bps) 3.50% (-10 bps)
TD 5.00% 3.50% 2.25% 4.30% (+55 bps) 3.30% (+35 bps)

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