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VIEW: UBS Eye 25bp Hike With Peak Staying High For Some Time

CANADA
  • UBS expect the BoC to hike 25bp on Wednesday, the smallest since March when it started the hiking cycle.
  • As the BoC moves the policy rate closer to the terminal rate, they expect the Governing Council will start to emphasize that cuts aren't near and that high inflation means the policy rate will stay at the peak level for a long time. The BoC will likely communicate that the pace of hikes is less important than the destination and the period of time that the policy rate stays at the peak level.
  • They see the Bank gaining confidence from recent data that unusually large hikes are not necessary, with the Q3 GDP report showing domestic demand losing momentum and some core measures show that inflation has probably peaked, something that Gov. Macklem has flagged.
  • They continue to expect a terminal 4.25% before cutting aggressively during H2 2023 and early 2024 as job losses mount during 1H23 and as inflation moves decisively toward the 2% target.
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