RBC Sticks With April Liftoff

Going against OIS pricing in a 97% chance of a hike in the Mar 2 meeting, RBC hasn’t outright changed its previous call for rate lift-off on Apr 13 although acknowledges risks of coming earlier.

• RBC’s previous call had been for lift-off in April, “though three months looks like a long time when the economy is already at full capacity and inflation is expected to remain elevated over 1H22”.
• They now see upside risk to their call of 3 hikes in 2022 if it does start in March, but still think market pricing of more than five rate hikes is too aggressive.
• The Bank clearly indicated upcoming meetings are ‘live’ for rate hikes with economic slack having been absorbed.
• “The fact that its next meeting is a short five weeks away may have contributed to the BoC’s patience” whilst not hiking yesterday “also allows for a more graceful exit from its forward guidance than if the BoC hiked in Jan after reiterating its “middle quarters of 2022” guidance in Dec.
• Balance sheet normalisation is seen in 1H22 but most tightening will come from rates and not shrinking its balance sheet.