Canadians in a world of HURT! Aggressive Rate Hikes coming to Canada 🇨🇦

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Canada’s Top Finance Experts See The Bank Of Canada Aggressively Hiking Rates
Canada’s central bank is overwhelmingly expected to hike interest rates aggressively. We polled the country’s top finance experts for their overnight rate forecast. Nearly all expect the Bank of Canada (BoC) to hike rates tomorrow. They don’t see the rate hikes ending there, though. Over the next year, they see interest rates rising aggressively to curb inflation.

Canadian Overnight Rate Sentiment Index
The Canadian Overnight Rate Sentiment Index (CORSI) is our latest sentiment tool. We ask a panel containing some of the country’s top experts for their overnight rate forecast. We then take the results and anonymize the forecast. This helps them to forecast as they feel, without the bias of expectations. We then plot the results on a Cleveland-style dot plot to see where forecasts are concentrated.

Reading it is easy since we did all of the heavy lifting. Each dot on the chart is where an expert expects the overnight rate to be at the end of the BoC rate announcement. The more dots, the stronger the sentiment is for that forecast level. Large clusters, or virtually all plots, mean a unanimous movement. Small clusters, or stray plots, are under-appreciated forecasts, considered noise when reading.

Forecasts tend to widen the longer out they are. This is a feature of every forecasting tool. It’s harder to predict what happens next year than it is to predict what happens tomorrow. It doesn’t mean you can predict tomorrow, but it’s a little easier than a year later.

Why Not US Traditional Interest Rates Forecast Models?
Market forecasts are mostly based on bond yields. Great quantitative data, but we’ve seen more emotional management of the economy. We expect objective management, but that only works if we’re managed by algos. Since humans make the decisions, they might make decisions that aren’t objective.

That’s where a forecast from an expert close to the economy comes in. They can feel tensions that might not be easily quantified. Political pressures, geopolitical turmoil, etc.. might not be fully factored into the market. Some things are better captured by humans for reasons that aren’t easily explained.

The last BoC overnight rate announcement is a great example. The market showed a consensus of a rate hike for the Jan 26, 2022 meeting. However, the CORSI showed no expert has forecast that rate hike. Some even forecast a hike at their institution, but didn’t feel it when anonymized. Consequently, the index was one of the few indices to doubt a rate hike, and it turns out it was right.

Obviously no tool is perfect for forecasting and we’re not presenting this one that way either. We do think it’s an important tool that can be added to your arsenal, to enhance forecasts.

Bank Of Canada Is Expected To Hike Rates Aggressively This Year