'Whistling past the graveyard’: Bank of Canada expected to go big with October rate hike as recession risks loom

The Bank of Canada is expected to deliver another rate hike on Wednesday in its fight against high inflation.

At a time when recession calls are growing louder, the central bank is expected to raise the policy rate by 50 or 75 basis points. The Bank is expected to take a break after this rate decision.

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The Bank of Canada raised the policy rate by three percentage points over the course of the year. The Bank of Canada governor is expected to hike rates by another 75 basis points due to his tough talk on inflation.

According to the note, the hike is consistent with the Bank's front-loading rate.

They said they expected the accompanying statement or press conference to concede that future adjustments wouldn't be as large. The central bank will move to a more finely balanced, decision-by-decision approach in December.

The monetary policy report accompanying the rate decision would be used to guide the Bank's decision if it decides to shift gears and cool the pace of tightening. The Bank could make major changes in policy and communications if the new economic forecasts are clear.

The drumbeat of global recession risks grows stronger as central banks hike their rates. It's a mounting risk that central bankers can't afford to ignore.

There are a lot of unknowns about central bankers. We expect them to acknowledge that there is a chance of a recession and that future rate hikes will be smaller. Their whistling past the graveyard isn't fooling anyone anymore.

The Royal Bank of Canada maintained its expectation of a moderate recession in the first half of next year. The Bank of Nova Scotia echoed this sentiment with chief economist Jean-Franois Perrault predicting a technical recession in 2023 and for the terminal rate, or the likely rate the Bank will max out at before cutting, at 4.5%.

The central bank is expected to hike its rate by 50 basis points on Wednesday, but slowing economic growth was highlighted by the team. According to Nathan Janzen, assistant chief economist at Royal Bank of Canada, there was a 0.6 per cent drop in hours worked in September. Since the beginning of the Pandemic in Canada, business sentiment has dropped the most.

Demand and growth have been adversely affected by rising rates. The latest inflation reading in September came in higher than expected, despite the drive to bring demand back in balance. Excluding food and energy, inflation rose at a faster rate than a month ago.

There is a chance of another 75 basis point hike for some economists. Canada may have to contend with more quarters of slower growth in order to put a lid on inflation.

Inflation isn't likely to return fully and sustainable to the central bank's target range until the economy slows further. Even though the growth outlook has softened, monetary policymakers are still focused on raising rates.