Big Canadian Banks Unanimously Expect a 50-Point Hike Next Week

(Bloomberg) -- It's unanimous: All six of Canada's major commercial lenders now expect the Bank of Canada to move ahead with a jumbo rate hike next week.

Canadian Imperial Bank of Commerce, National Bank of Canada and Toronto-Dominion Bank ramped up their calls for the central bank to raise its policy rate by half a percentage point to 1% at its April 13 decision. They join Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada in forecasting what would be the first 50-basis-point hike since 2000.

The consensus among Canadian banks, which emerged Monday after a quarterly survey of executives showed firms hitting capacity constraints amid deepening inflation worries, is even more aggressive than what's expected in the market. Investors in overnight swaps are pricing in about an 80% chance of an outsized hike.

Gross domestic product data released Thursday showed the economy gaining momentum as restrictions meant to counter the omicron variant of Covid-19 were eased.

“There's enough there to give the Bank a pass at hiking 50 basis points, especially following the February flash GDP number,” Andrew Kelvin, chief Canada strategist at TD Securities, said by email. “In this environment, we think it probably makes sense for them to take the path of least resistance.”

Jobs numbers for March are due Friday, with the unemployment rate hovering near a five-decade low.

Economists have been changing their rate forecasts amid tougher talk by policymakers around the world. In a March 25 speech, Deputy Governor Sharon Kozicki said the Bank of Canada will “act forcefully” to quell inflation, which is now rising 5.7% annually -- the fastest pace in three decades.

The new rate calls are a marked shift in the outlook for borrowing costs that will take many Canadians by surprise and represent a major test for an economy with one of the highest total debt burdens in the developed world.