Half-point BoC hike 'starting to smell like an overshoot': Devlin

"The market is now pricing an actual tightening, even though we're still emerging from a pandemic, and we're dealing with the outbreak of war in Europe. For me, this starts to smell like an overshoot"

The former head of Pimco's Canadian portfolio management team is not buying into the view that the Bank of Canada should raise its main policy rate by half a percentage point next month.

"The market is now pricing an actual tightening, even though we're still emerging from a pandemic, and we're dealing with, you know, the outbreak of war in Europe. For me, this starts to smell like an overshoot," said Ed Devlin, the founder and managing partner of Devlin Capital, in an interview Tuesday.

In recent days, numerous calls have emerged for the Bank of Canada to ramp up its rate-hiking program, particularly after Sharon Kozicki, a deputy governor at the central bank, stated on Friday there's willingness to "act forcefully" to rein in inflation.

Bank of America's global research team joined the calls for half-point hikes on Tuesday. In a report to clients, its economist for Canada, Carlos Capistran, said he’s now expecting the Bank of Canada to raise its main policy rate by 50 basis points at its meetings in April, June, and July — followed by quarter-point hikes until the target for the overnight rate hits 3.25 per cent in March 2023, compared to its current level of 0.50 per cent.

Capistran pointed to rising inflation, a tighter labour market, higher commodity prices as a result of the invasion of Ukraine, and a more hawkish U.S. Federal Reserve as his main reasons for saying the Bank of Canada needs to move more aggressively.

However, Devlin suggested it would be prudent for the Bank of Canada to not act in haste as Russia's attack on Ukraine unfolds.