Economists Weigh in on Bank of Canada Rate Cut Possibilities for September
The Bank of Canada’s decision to cut its interest rate for the second time in this cycle has left economists confident that more reductions are on the horizon. The central bank’s decision to trim its key policy rate to 4.5 per cent was broadly anticipated by economists and the market.
Economists Weigh In
Stephen Brown, deputy chief North America economist with Capital Economics, said the Bank of Canada’s comments suggested it would keep cutting rates if inflation continues to ease. "Our forecast for inflation this quarter is the same as the bank’s, leaving us to judge that another interest rate cut in September is the most likely outcome," Brown wrote in a note.
The economist added that the announcement came as ‘no surprise’ as the market had put the chances of a rate cut at 90 per cent. The Bank of Canada’s decision to cut its interest rate was also of little surprise to Avery Shenfeld, managing director and chief economist of CIBC Capital Markets.
More Rate Cuts Expected
Shenfeld had previously predicted a hold in September before another cut in December. However, after today’s announcement, he is shifting his prediction to two more rate cuts before the end of 2024, taking the overnight rate down to four per cent.
Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets, said today’s decision was ‘easy’ and ‘little surprise’ but the central bank will need to do more in short order to avoid further damage to the economy. "As we’ve been saying for some time, the Bank of Canada needs to materially lower rates ahead of the mortgage renewal wall which hits in early 2025 to have any chance of avoiding a recession," he said in a note.
Mendes is also shifting his September prediction from a hold to another cut, with the next hold coming in December. Douglas Porter, chief economist at the Bank of Montreal, said if the next consumer price index comes in at a 0.2 per cent month-over-month climb or lower, then another rate cut in September is ‘very much on the table.’
Bank of Canada Rate Cuts: What to Expect
The tone of today’s many remarks almost seems to suggest that the bank now needs to be convinced not to keep trimming rates. Porter continued, "We continue to look for two more rate cuts before the end of 2024, taking the overnight rate down to four per cent, with the precise timing over the next three meetings driven by the incoming data."
Scotiabank also sees the Bank of Canada rate at 4% by the end of 2024. Economists are weighing in on what this means for the economy and interest rates.
What This Means for You
The decision to cut interest rates is likely to have a positive impact on the economy, particularly for those who are planning to purchase a home or invest in the market. However, it’s essential to keep in mind that more rate cuts may be necessary to avoid further damage to the economy.
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