Bank of Canada announcement – what do brokers think will happen?

CMP spoke with mortgage professionals across Canada ahead of the hotly anticipated decision

Bank of Canada announcement – what do brokers think will happen?

As the Bank of Canada’s next statement on its policy interest rate looms, mortgage brokers appear convinced that a quarter-point hike is in the cards on March 02.

Ten of 12 mortgage professionals surveyed by Canadian Mortgage Professional said they anticipated an increase in that benchmark rate by 0.25%, which would represent its first change since the outbreak of the COVID-19 pandemic in Canada in March 2020.

Those results fall in line with economists’ expectations for the Bank decision, with a recent Reuters poll indicating that 25 surveyed economists all believed that a 25-basis-point hike was the likely outcome of the central bank’s Wednesday announcement.

Christine Buemann (pictured top), a BC-based broker with Premium Mortgage and partner at The Collective Mortgage Group, told CMP that rate hikes by the Bank in 2022 would seek to restore more normal borrowing rates after the extraordinary measures taken at the onset of the pandemic.

“It’s important to note that the target overnight rate dropped by a total of 1% in March 2020,” she pointed out. “Increases this year will be a readjustment back to more sustainable levels.

“Of course we need to keep an eye on inflation, but it appears to be fuelled by more of a supply chain issue which should be easier to self-correct.”

The Bank’s decision to leave its benchmark rate untouched in January took some observers by surprise, although Canadian Imperial Bank of Commerce (CIBC) deputy chief economist Benjamin Tal told CMP at the time that its lack of movement was little more than a “huge PR exercise.”

Read more: Bank of Canada rate decision: "a huge PR exercise" says CIBC's Tal

It made little difference economically to delay a policy rate increase until March, according to Tal, who emphasized that the Bank had effectively signalled in its January statement that a rate hike was imminent.

“Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target,” the Bank said in that opening rate announcement of 2022.

Markets are currently pricing in up to eight borrowing-cost increases by the Bank over the course of the year, a strategy that some analysts believe necessary to curb a rate of inflation that has recently ballooned to a 30-year high in Canada.

That’s a scenario that Drew Donaldson, founder and CEO of the Toronto-based Donaldson Capital brokerage, said was “biased and not likely,” with moderation likely to be the name of the game for the Bank as it navigates a precarious economic landscape in 2022.

“We’re expecting slow and steady rate hikes over the course of 2022 – likely three, but data dependent,” he told CMP.

In recent weeks, comments by the Bank’s deputy governor Tim Lane seemed to confirm that a rate increase was on the way, with the official stopping just short of saying that March 02 would be the date of that hike.

Read next: Inflation hits milestone high in Canada

Lane said in the same speech that the Bank was “alert to the risk” posed by the threat of persistent inflation, although he reinforced the central bank’s oft-stated view that inflation would drop substantially by the end of the year.

Carmen Costa, a broker at TCG Lending Centres, told CMP that inflation would be the key factor behind the Bank’s decision on a possible Wednesday rate hike.

“I believe [the rate will rise] by 0.25%,” she said. “Why? It’s due to inflation. We’ve hit a record high… Higher interest rates will make borrowing expensive, which means cooling demand down in the market.”

Two brokers asked by CMP said that the Bank would hold fire on hiking rates in March. One said that current pressure on the federal government could weigh on the central bank’s decision, while another indicated that the Bank would wait until the release of the latest Labour Force Survey – a monthly measure of the state of Canada’s labour market – on March 11 before giving the go-ahead for a rate increase.  

Economists surveyed in Reuters’ poll on future Bank rate hikes produced a median forecast that next quarter would see the benchmark rate rise by 0.5% next quarter, with further increases set to bring the rate to 1.25% by the end of 2022.

The Bank is set to reveal its decision on the policy rate at 10:00 a.m. EST on Wednesday, March 02.