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VIEW: GS Towards Higher End Of Rate Path Views

CANADA

As a result of the hawkish tone and their above-BoC inflation forecasts, Goldman front-load their rate call to have three additional 50bp hikes (from one previously), with two-side risks.


  • Significant upgrades to the BoC’s 2022 Q4/Q4 inflation forecast to 4.5% (from 3.0%) reflecting higher commodity prices and more persistent supply disruptions from the Russia-Ukraine war.
  • The BoC forecast implies the sequential pace of inflation to moderate to ~3% in Q3 and ~2½% in Q4 (vs. just above 2% previously in both quarters), but Goldman see upside risks to Q3.
  • The BoC also upgraded the 2023 Q4/Q4 inflation overshoot to +2.4% (from 2.2%) and see it slightly above target in 2024.
  • Goldman add 50bps to their rate path in 2022, driven by three consecutive 50bp hikes.
  • That helps get rates of 3% by end-2022 or the very top of the new neutral range and slightly above that in early 2023.
  • Risks are two-sided. The Bank could hike 25bp in Sep if inflation moderates or it could move in larger than 50bp clips in either June or July if it wants to get to neutral even quicker.
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