🏦🇨🇦 Cable FX Macro Weekly Note: Bank of Canada Rate Decision

**As seen in Risk In The Week report 09/02/2022, subscribe at cablefxm.co.uk/reports

Back in July, the Bank of Canada hiked rates by 100bps to 2.5%, this was above the 75bps call some desks pinned going into the event. The central bank said it opted to front-load the rate path as more hikes are needed, the statement flagged risks of high inflation becoming entrenched in Canada. The BoC pointed to inflation errors on global factors and housing costs, however, they saw some easing in the housing market from unsustainable strength. The central bank saw inflation reaching 8% this year and then slowing to 3% by end of 2023. In terms of growth, they cut the GDP forecast to 3.5% in 2022, and to 1.8% in 2023. Since the July meeting, overnight index swaps market has scaled up the BoC O/N rate expectations by about 25bps to 3.75% by December, this means the bank is seen delivering an additional 125bps of tightening before the year ends. Money markets expect the BoC to peak around 4.0% by next year. We recently saw GDP figures from Canada, the desk at Goldman Sachs highlighted the 3.3% Q2 annualized print was below expectations, however, they see the BoC hiking rates by 75bps in September as the economy still needs restrictive policy. Ahead, Goldman sees a terminal rate of 4.25% reached by January. Analysts at UBS say the meeting is a close call and stick to their 50bps view, which would leave the O/N rate at 3.0%. UBS downgraded its 2022 GDP growth forecast to 1.6% from 2.4%, this is below the BoC’s MPR projection of 2.6%. Also, UBS reminds us that after the July inflation report, BoC’s Governor Macklem published an opinion piece in which he said that inflation may have peaked in Canada.