Goldman Sachs with a non-consensus call: Goldman Sachs doesn't think the Bank of Canada will hike rates this week

Bank of Montreal say the BOC will hike:

  • a hike for the first time in seven years
  • A 25 bps hike

BOM cite:

  • a string of speeches and interviews from BoC officials has made it clear that a rate hike is coming
  • A consensus appears to have formed around a July hike as there can be little other reason for the timing of the rhetoric shift
  • If they wanted to wait until October to hike, why not signal such a move at the coming meeting instead of a month earlier?

More from BOM: The Bank has laid out two main rationales for the anticipated hike:

  • 1) In 2015, the BoC cut rates 50 bps to facilitate the economic adjustment to the precipitous drop in oil prices. Following 3.5% average GDP growth from 2016Q3 to 2017Q1, policymakers reasonably believe that the adjustment is "largely" complete. Indeed, we've seen activity pick up strongly in oil-producing regions corroborating the narrative. Accordingly, it follows that removing 2015's 50 bps of easing makes sense.
  • 2) The April MPR projected the output gap would close in 2018H1, and the data since then should keep that timeline intact. In the three tightening cycles since 2000, the Bank has started hiking around one year ahead of when the output gap is forecast to close. July fits nicely in that window, while October risks falling a bit behind the curve if the output gap closes in the early part of H1. Both Governor Poloz and Sr. Dep. Governor Wilkins said that monetary policy has to act preemptively due to the lagged effect of a move.

BOM on slowing inflation:

  • There's no denying that core CPI has slowed, but if the Bank believes it will accelerate over the next year, there's little merit to the argument against a move.
  • Beyond CPI, it's tough to say the economy needs this level of stimulus, with nearly every other indicator on fire. Even exports are showing some signs of life with non-energy export volumes rising in three straight months.


The Bank of Canada meet July 12

  • Overnight rate is currently 0.5%