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CIBC See BoC Hiking 50bp With At Least Some Conditionality, But Tight Call

CANADA
  • The BoC has a choice of another 50bp hike or dialing down to only 25bps. The closing statement can choose among three messages about what lies ahead: retaining the phrase that rates “will need to rise further”; amending that to something like “may need to rise further” to open the door to a pause; or stating that interest rates may be at an appropriate level to indicate that a pause is now quite likely.
  • The most aggressive option, a 50 bp hike and a promise of more to come, seems implausible, since it can’t be that sure that a rate higher than 4.25% will prove necessary.
  • Alternatively, the most dovish, a 25 bp move and a declaration that rates are now appropriate, also seems unlikely. If the Bank was now quite sure that 4% was the ceiling, it wouldn’t have been that sure that a further hike was coming when it lifted the target to 3.75% only weeks ago.
  • That leaves four reasonably plausible options on the table. CIBC's call has been for a 50bp hike, but at least adding the same conditionality (i.e. the word “may”) to a mention of further hikes. That would be followed by a decision to leave rates on hold at the first meeting in 2023 should Q4 growth signals look sufficiently soft as a day when you’re hiking a full 50bp might not be the best day to formally announce a pause.
  • For the economy, a 50bp hike and a pause in Jan wouldn’t be materially different than hiking 25bp now and then following up with a final 25bp early in 2023, but we wouldn’t bet heavily on which one.
  • With BoC Deputy Governor Kozicki scheduled to speak on Thursday we could see the market tilt one way on the announcement, only to be jarred back the other way if her remarks attempt to correct its interpretation.
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