BoC more likely to hike than cut in 2023, says RBC economist

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Nye said the Bank would be watching intently to see whether economic activity begins to tamp down in line with the expectations of its latest Business Outlook Survey, which revealed that businesses forecast slower sales growth in the coming months.

“I think the Bank message… was that they need to continue to see that if they’re going to remain on the sidelines. The market is pricing in about one rate cut by the end of this year,” he said. “That’s a big change from just over a month ago, [when] prior to the turmoil that we saw in the US banking sector the market was pricing in decent odds of another rate hike by the Bank of Canada later this year.

“So that pricing has really shifted from hikes to cuts, and it seems like Macklem was trying to remind folks that [the Bank] has a tightening bias so in their view, the next move is probably more likely to be a hike.”

Even if that hike does not materialize, the Bank is likely to keep rates at an elevated level for an extended period of time, “and probably longer than the market is pricing right now,” according to Nye.

The Bank expects that inflation, which slowed to 5.2% in February, will fall to around the 3% mark by the middle of 2023, before dropping further to its 2% target before the end of next year.

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