Speaking with BNN Bloomberg on Monday, TD Bank`s Deputy Chief Economist Derek Burleton said that he expects the central bank to increase its policy interest rate to 5.00 per cent.

``We see signs pointing toward a rate hike, and the markets are already ready for it,” said Burleton. ``It`s a close call on whether the Bank of Canada will hike after that, and we`ve decided for now not to build in a follow up rate hike in September."

TD isn't alone in its assessment of another rate hike. A Bloomberg survey of 25 economists suggests the central bank will increase its key overnight rate to five per cent on July 12. That`s when the bank will also release its Monetary Policy Report, which will include its full outlook for the economy and inflation, along with risks to the projection. '

RATE CUTS AND A RECESSION

TD is predicting interest rate cuts will start in the second quarter of 2024.

“It will be a gradual step-down”, said Burleton.

As for the possibility of a recession, Burleton said, "We know the economy will slow significantly, the question is when"

“We expect core inflation to be elevated for the rest of 2023, but broad inflation is sticky.”

South of the border, TD suspects the U.S. Federal Reserve won`t reach its two per cent inflation target until the first half of 2025, leading to a shift in TD`s forecast call.

Burleton is expecting the Fed will hike another quarter point next quarter.