VIEW: RBC Stick With Just 25bp Hike In June

One of the few sell side analysts to look for a 25bp hike as a base case, RBC acknowledge upside risk to their forecast for the BoC to halt its tightening cycle at 2%.

• The 50bp hike suggests a loss of the patience it demonstrated in January when it passed on hiking.
• The BoC wants to move toward a more neutral policy stance in short order. That goal post shifted slightly on Wednesday with the neutral rate estimate increased by 25 bps to a 2-3% range.
• RBC assume more standard, 25bp hikes going forward until the overnight rate hits 2% in October, but another 50bp hike will be on the table in June.
• RBC expect a 50bp hike in June if the BoC's forecast of 6% annualised GDP growth in Q2 materializes and is accompanied by a further decline in the unemployment rate to 5% or lower.
• The BoC will likely have limited tolerance for further upside surprises of headline inflation seen averaging almost 6% in 1H22, though that’s not something RBC expects at this stage.