Jan 21, 2022
CIBC goes against Bank of Canada consensus, sees 'hawkish hold'
By Noah Zivitz
We’re expecting the BoC to hold off until at least March to raise interest rates: CIBC FX strategist
VIDEO SIGN OUT
Markets have flocked to the view that the Bank of Canada is going to raise its benchmark interest rate next week, but it's by no means a unanimous view.
Strategists at CIBC Capital Markets are holding firm in their expectation that the central bank's liftoff is still a few months away.
"We side against market consensus, and ultimately believe the Bank will not raise rates next week. Instead we expect a hawkish hold, and market pricing for January will get reallocated into 2023," a report released on Friday and led by Ian Pollick, CIBC's managing director and head of fixed income, currency and commodities strategy, said.
By mid-morning Friday, investors were pricing in a 73.8 per cent probability that the Bank of Canada will raise its main policy rate 25 basis points to 0.5 per cent on Wednesday, according to Bloomberg data.
A week ago, that probability was hovering near 50 per cent. But conviction rose after the Bank of Canada's Business Outlook Survey showed growing concern about inflation among corporate leaders and on the back of an inflation report that suggested the cost of living rose in December by the most since September of 1991.
Nevertheless, rather than hiking, CIBC is telling clients it thinks the Canadian central bank next week will instead opt to adjust its so-called forward guidance. Most recently, the central bank has been saying the conditions should be right to raise rates in the middle quarters of this year.
CIBC reckons that messaging will change next week to the first quarter, which would open the door for liftoff in March or April. CIBC is expecting the latter, but the report acknowledged the March meeting "is live."
"We believe the Bank can afford to remain patient, as waiting a few weeks to hike later in March or April will not materially impact the inflation trajectory or risk overheating the economy, especially given the former has been caused by supply-chain and pandemic related shortages, which won’t be resolved," the report said.
