In the wake of the Bank of Canada’s most recent policy meeting, Scotiabank’s Derek Holt is standing by his call for eight interest rate hikes before the end of 2023, arguing that borrowing costs need to be adjusted in order to combat inflation.

Another high profile economist, however, said rate hikes won’t curb consumer price appreciation.

“Definitely in 2022 I think we’re going to see several rate hikes,” said Holt, Scotiabank's head of capital markets economics, in an interview Thursday. 

“We had forecast four rate hikes in the second half of next year starting in July, and we’re contemplating the risk of bringing that forward. I think it’s very feasible that those rate hikes ring in the New Year, if not January, then at a minimum next spring or thereabouts.”

Holt said Canadian households have some time to prepare, suggesting early moves from Bank of Canada Governor Tiff Macklem will be gradual and measured, but concluded the era of “ultra cheap” financing rates is drawing to a close.

At the Canadian central bank’s meeting Wednesday, Macklem brought an end to the quantitative easing program, while also hinting at “the middle quarters of 2022” as a possible timeline for the first post-pandemic interest rate hike.

The Canadian dollar and yields soared in response to the bank’s messaging, which Holt said will go a long way toward helping the Bank of Canada.

“I think that’s necessary,” said Holt of Wednesday’s market reaction. “Because going forward, if we come anywhere close to the kind of growth numbers we’re expecting and inflation, then this kind of tightened financial conditions will be occurring for the right reasons. 

“I think markets are in the driver’s seat, and the Bank of Canada is facing a pretty significant credibility challenge in the markets.”

Frances Donald, meantime, isn’t as convinced that interest rate hikes are the cure to what ails the Canadian economy, even suggesting Macklem will have to do some walking back from his most recent economic update.

“When you look at what the Bank of Canada is telling us, they’re saying they’re more concerned about inflation and that this is one of the motivations to hike interest rates maybe sooner rather than later,” said Donald, chief economist and head of macro strategy at Manulife Investment Management, in an interview Thursday.

The problem is, according to Donald, the inflation impacting Canadians is a result of global issues like port closures in China, tariffs, and droughts in Brazil.

“The type of inflation that central banks can monitor is that stickier longer-term inflation driven by higher wages and shelter costs. That’s the type of inflation they can focus on,” she said.

“My concern is that if we do see a Bank of Canada that’s raising rates as aggressively as the markets are saying, that’s actually going to do very little to help our inflation problem and actually dampen growth further.”

Donald said she would rather see the central bank deliver messaging similar to what the European Central Bank and the U.S. Federal Reserve are saying, which is that inflation is transitory, and these price pressures will likely abate some time in the new year without interference from monetary policymakers.

“I suspect they cannot move nearly as fast or as high as the market is pricing,” she said. “Prepare yourself for one or two interest rate hikes in 2022.”