Rate increase expected earlier in 2022

December 15, 2021



Despite inflation threats, half of the Canadian economists surveyed after the Bank of Canada (BoC) held its 0.25 per cent rate steady on December 8 believe the BoC could increase the lending rate by the second quarter of 2022.
All but one of Finder’s 20 economists on Finder’s BoC Interest Rate Forecast panel correctly predicted the rate would hold for all of 2021.
The Bank of Canada stated December 8 that rates should remain low until the “middle quarters” of next year.
This suggests the first BoC rate hike will come anytime between April and September, although odds are currently pointing to earlier rather than later.
For more than a year now the 20 economists in Finders’ BoC Rate Forecast panel had correctly predicted the rate would hold this year.
Still, with the Bank of Canada declaring inflation is no longer ‘transitory’, some experts are starting to expect action, sooner rather than later.
While inflation has been rising, many experts like Derek Holt, vice president and head of capital markets economics at Scotiabank, believe the rate should hold due to the risks associated with the new Omicron variant.
Holt explains, “We are erring on the side of cautious optimism, however, such that the BoC may face different pressures to act upon being behind the curve fairly early into the new year.”
However, the timeline for when most believe the rate will hold is fast approaching. 
As recently as the October report just 17 per cent believed the rate would rise in the first half of 2022, whereas now 50 per cent see the rate moving within the next 6 to 12 months, a nearly three-fold increase.

Sebastien Lavoie, chief economist for Laurentian Bank is in the majority who thinks the rate should move sooner, believing the federal government’s, “hefty spending has to be rebalanced by a faster withdrawal of monetary easing.”