Pimco sees traders overshooting Bank of Canada rate-hiking path
BNN Bloomberg
How aggressive will the bank be this year? Bloomberg asked investment managers for their view on the key factors guiding Governor Tiff Macklem and members of the rate-setting council.
The Bank of Canada could start a cycle of interest-rate hikes this week with its first increase since 2018. Many economists and traders expect the central bank to boost its key policy rate 25 basis points on Wednesday, with more to follow.
How aggressive will the bank be this year with inflation running at its highest in three decades? Bloomberg asked investment managers for their view on the key factors guiding Governor Tiff Macklem and members of the rate-setting council.
Pimco: Expectations are too hawkish
The swaps market is pricing in about six rate hikes over the next 12 months, but that may be “a little bit more than what actually ends up getting delivered,” said Vinayak Seshasayee, a portfolio manager overseeing Canadian fixed-income assets at Pacific Investment Management Co.
Pimco sees the Ottawa-based central bank moving four times this year, similar to expectations for the U.S. Federal Reserve. Macklem has other tools for tightening, such as shrinking the balance sheet, Seshasayee said, and there are other factors that will prevent Canadian policy makers from pushing rates too far, too fast.
“In Canada, we have recovered a lot of jobs, but when you put the labor market through other lenses, there still appears to be a fair amount of slack in the labor market -- particularly when you look at things like total hours, work productivity,” Seshasayee said. Canadian households also have high average debt levels, making the economy sensitive to higher rates.
