Bank of Canada due for ‘oversized’ 50-basis-point interest rate hike: economist

The Conference Board of Canada's Pedro Antunes says the economic forecast has never been harder to predict as the central bank gears up for an expected rate hike Wednesday.

The Bank of Canada is likely to hike its key overnight rate by half a percentage point on Wednesday, the Conference Board of Canada’s chief economist says, as the think tank’s economic forecast predicts home prices could start to drop next year.

Pedro Antunes tells Global News he expects the central bank to double its key overnight rate to one per cent at its announcement on Wednesday with an “oversized” increase of 50 basis points.

He joins the growing chorus of economists and market forecasters who are now widely expecting an interest rate hike of half a percentage point, the first since May 2000.

Back then, the nominal neutral rate — the level of interest that allows full productivity and keeps inflation on target — was around five per cent. Today, the Bank of Canada estimates the nominal neutral rate to be between 1.75 per cent and 2.75 per cent.

“A 50 (basis point) hike will do a lot more to cool the economy down today than it did back then,” said Desjardins’ head of macro strategy, Royce Mendes, in a note.

Mendes also says that the Bank of Canada will likely slow the pace of its monetary policy tightening after April and expects “further rate hikes to come in measured steps.”

“That would leave the overnight rate at 2.00 per cent at the end of the year,” he said.

Meanwhile, TD’s chief Canada strategist, Andrew Kelvin, expects the central bank to lift the overnight rate to 2.50 per cent by the end of the year.