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BofA See BoC Signaling Large Hikes May Continue

BOC
  • BofA expect a 75bp hike in the overnight rate to 2.25% with risk to the upside.
  • Supporting factors are (i) both headline and core inflation still increasing; (ii) high inflation expectations; (iii) a very tight labor market; (iv) a positive ToT shock from high oil prices; and (v) a hawkish US Fed that is already hiking in 75bp clips.
  • BofA see this followed by 50bp hikes in both Sep and Oct before slowing to 25bp at each subsequent meeting until it reaches 4.00%.
  • MPR: Downside risks to the Bank’s GDP April forecasts of 4.2% for 2022 (BofAe 3.8%) and particularly 3.5% for 2023 (1.8%) whilst inflation should be revised up considerably from the 5.3% for 2022 (7.2%) but broadly in line for 2023 at 2.8% (2.9%).
  • They still expect yields to rise into the year-end, looking for 2y/5y/10y yields of 3.4%/3.4%/3.45%, with BoC hikes a key reason why they continue to look for lower USDCAD in the medium-term, with a year-end forecast of 1.25.
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