OTTAWA/BENGALURU (Reuters) – The Bank of Canada is now expected to raise interest rates for the first time in nearly seven years this week, according to a Reuters poll on Tuesday that showed some analysts bringing forward forecasts for a hike after strong economic data and hawkish comments from policymakers.
The median consensus in the poll showed the bank will hike rates by 25 basis points to 0.75 percent on Wednesday, compared with expectations that a hike would come in the fourth quarter in a poll published just last week.
Expectations for a rate hike have been building since last month when policymakers shifted to a hawkish stance, saying that rate cuts put in place in 2015 have done their job.
Combined with recent data, including strong jobs figures, the hawkish tone prompted six of the 31 economists polled by Reuters to change their view since the last poll.
“It just seemed like all the ducks were in a row for a hike,” said Silvana Dimino at JPMorgan, which changed its forecast on Friday.
Markets in comparison are pricing in an about 88 percent chance of a rate hike on Wednesday.
Still, economists see a rate increase as a case of one and done for the Bank of Canada this year. The median forecast is for the central bank to hold at 0.75 percent through the rest of 2017 before raising rates again in the first quarter of 2018.
Economists will be focused on the language of the central bank’s statement, as well as their updated economic projections, to get a sense of how quickly the tightening cycle could unfold.
It would be the first rate move for the bank since it cut rates twice in 2015 to offset the hit to the economy from a slump in the price of oil, a major export.
The bank as recently as January had said rate cuts are still on the table and the hawkish shift caught many by surprise.
Despite moving his forecast forward to include a hike in July and October, HSBC economist David Watt said he expects the central bank to hold steady in 2018 as it waits for a pickup in wage growth and core inflation and sustained improvement in business investment.
Reporting by Leah Schnurr in Ottawa, Anu Bararia in Bengaluru; Editing by Meredith Mazzilli