America’s largest bank is making a bold call for Canada’s central bank — it will raise rates within days. JP Morgan (JPM) economist Silvana Dimino shared their forecast for Canadian interest rates. JPM sees the Bank of Canada (BoC) hiking the overnight rate five times in 2022, sending it 500% higher. Most surprising is how soon they see this starting — by the end of this month.
The Bank of Canada Will Raise Rates This Month
JP Morgan sees the BoC raising interest rates faster than previously thought. They’re calling one full hike at the January 26th monetary policy meeting. “We now expect the Bank will hike the policy rate 25bp at the next meeting on Jan 26, earlier than implied by the Bank’s current forward guidance and earlier than our prior April 2022 forecast,” wrote Dimino to clients.
The Overnight Rate Will Rise 500% This Year
The banking behemoth sees Canada raising interest rates five times this year. One per monetary policy report, as well as an additional hike in June 2022. The BoC overnight rate will be 1.50% by the end of the year if it goes to plan. It’s the same year end as the National Bank of Canada’s estimate we shared yesterday.
Canada’s Economic Recovery Has Been “Remarkable”
Strong employment and inflation are the primary reasons their forecast has accelerated. The bank points to Canada having 250,000 more employed people than pre-pandemic; the participation rate has recovered; and unemployment is near Feb 2020 levels. “The recovery and continued growth in the labor market after the severe provincial lockdowns of last spring has been nothing short of remarkable,” Domino says.
JPM thinks the BoC still believes inflation pressures will ease later in the year. At the same time, higher employment and wage growth will support elevated inflation. “… the risks that inflation will be more persistent than perceived earlier in the pandemic have grown materially.”
It’s important to understand higher interest rates are a sign of a strong economy. As the economy improves, they should be rising. This is part of the reason most of Canada’s large banks are saying it’s reckless to keep rates this low. Some think they should have begun hiking a year ago. The last time the overnight rate began to climb in 2017, macro indicators weren’t this impressive.