Morgan Stanley, Citi expect BoC to deliver quarter-point rate hike in July

(Reuters) - Morgan Stanley and Citigroup forecast the Bank of Canada (BoC) would deliver a 25-basis-point interest rate increase in July, revising their expectations a day after the central bank announced a surprise hike.

Citigroup said there was a high chance of rates rising above 5%, while Morgan Stanley expects a final quarter-point rate hike in July to reach a peak rate of 5%.

"Given the current economic momentum, we believe it's unlikely the bank will see enough progress towards restoring price stability before its next scheduled rate decision in July for this to be a 'one-and-done' hike," Morgan Stanley economists said.

Canada's central bank on Wednesday raised its overnight rate to a 22-year high of 4.75%, leading markets and analysts to immediately forecast yet another increase next month to tackle an overheating economy and stubbornly high inflation.

"The BoC likely will still be somewhat more cautious on further hikes now than at the start of the cycle given that rates have increased substantially already," Citigroup economists said in a note dated June 7.

(Reporting by Reshma Rockie George in Bengaluru; Editing by Devika Syamnath)