The Bank of Canada is scheduled to make its next rate announcement in a couple of weeks, and one bank is predicting that this will be the start of two back-to-back 50 basis point (bp) hikes to the overnight rate.

In a recent Bank of Montreal (BMO) Economics EconoFACTS report, deputy chief economist Michael Gregory and Benjamin Reitzes, managing director of Canadian rates and a macro strategist for fixed income strategy, published updated predictions on policy rates for the Bank of Canada and the Federal Reserve. A “sharply hawkish turn in rhetoric,” from both federal banks in response to rising prices prompted the economists to revise their outlooks.

Now, BMO is forecasting that there will be a 50 bp rate hike at each of the next two BoC policy announcements, which are scheduled for April 13th and June 1st. This would be followed by a 25 bp increase in July.

“That would put rates at 1.75%, the lower end of the BoC’s 1.75% to 2.75% neutral range and the peak of the last cycle,” said the report. “In addition, quantitative tightening (QT) looks to start at the April meeting.”

The overnight rate is currently 0.5%, and was increased from 0.25% during the BoC’s March 2nd rate announcement. In a previous EconoFACTS report, Reitzes forecasted that the BoC would make a 25 bp rate hike during the next scheduled meeting in April.

As inflation soars well above the BoC’s 2% target — the consumer price index rose 5.7% annually in February — policymakers have “flagged a more hawkish path for interest rates.”

At the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference last week, the BoC’s deputy governor, Sharon Kozicki, said that the BoC is “prepared to act forcefully,” to return inflation to target. In the same speech, Kozicki also said that the “pace and magnitude of interest rate increases and the start of QT to be active parts of our deliberations at our next decision in April.”

Words like “forcefully” and “magnitude”, in addition to the change in tone, are the reasons Gregory and Reitzes say they have changed their BoC rate call.

The BMO economists stated that they anticipate a “more tepid pace of tightening,” in the following months, with 25 bp rate hikes at each of the next three meetings in October, January and April. This would leave policy rates at 2.5%, near the higher end of the BoC’s neutral range.

Federal Reserve to increase rates by 50 bps, twice

Over at the Federal Reserve, Chair Jerome Powell’s “candid policy signalling,” in a recent speech has prompted BMO to adjust their call on policy rate hikes after he stated that there was “an obvious need to move expeditiously to return the stance of monetary policy to a more neutral [level].”

The BMO economists now anticipate that the Federal Open Market Committee (FOMC) will raise rates by 50 bps during the next two meetings, then shift back to a 25 bps per meeting for the rest of 2022. This will send the target midpoint to 2.375% by December, 50 bps above BMO’s previous call.

“Given this is the FOMC’s median longer-run neutral level and the slightly onerous peak of policy rates last cycle, we suspect the Fed will move more cautiously (every second meeting) in 2023,” said the report. “We see the target range terminus at 2.75% to 3.00% by mid-next year.”

BMO Predicts Two 50-Point Rate Hikes by Bank of Canada in Updated Forecast by Michelle McNally ” Livabl