Yahoo Finance Bank of Canada seen cutting interest rates three more times this year
The Bank of Canada cut its key overnight interest rate to 4.75 per cent on Wednesday and economists believe more relief is on the way. Though the move was widely expected, it is being praised as a long-overdue change of direction that will have wide-ranging effects on the Canadian economy. Here’s what economists have to say about the first interest rate cuts in more than four years:
More cuts expected: CIBC
Andrew Grantham, senior economist at CIBC, believes Canadians will see more interest rate relief in short order.
“Financial markets had mostly priced in today’s cut to the overnight rate beforehand, but long rates and the Canadian dollar still moved lower on the news as a perceived dovish tone suggests the likelihood of a greater number of follow-up moves,” he said in a note.
“We continue to forecast a further 25 (basis point) reduction at the next meeting in July, and a total of four cuts (three more after today’s) by the end of the year.”
‘Good day for Canada’: RSM
“The Bank (of Canada) had all the ingredients for a rate cut: headline and core inflation measures have fallen below three per cent, growth has been flat and unemployment is rising. And they did the sensible thing,” Tu Nguyen, economist with RSM Canada, said in a news release.
Nguyen is also predicting another cut in July and three total additional cuts before the end of 2024.
“While a single rate cut will not revive the economy overnight, it signals to consumers and businesses the beginning of a gradual and orderly rate-cut cycle that will unfold over the next year and a half,” she said. “Recovery can begin now and hit full force in 2025.”
Cautious no more: Capital Economics
“The most striking thing about the statement is what it did not say, which was any reference to taking a cautious or gradual approach to policy loosening, instead simply noting that ‘risks to the inflation outlook remain,’” Stephen Brown, deputy chief North America economist with Capital Economics, said in a note.
Brown added that the statement suggests Canadians could see cuts at all four of the remaining policy announcements in 2024.
Yard became overgrown: TD
James Orlando, director and senior economist with TD Bank, has been calling for rate cuts since the start of 2024.
“Like that one neighbour who has let their yard become overgrown, the BoC has heard the complaints and decided to bring out its policy trimmers to cut rates,” he said in a note.
“While the (Bank of Canada) has waited longer than we would have hoped, today starts the process of lower interest rates for Canadians going forward.”
Next month of data is crucial: BMO
“The key message from today is that they are going to take this on a meeting-by-meeting basis, so every CPI report matters, as does every GDP and jobless rate release, to a lesser extent,” said Douglas Porter, chief economist with the Bank of Montreal.
“There are two CPI (and jobs) reports prior to the July 24 decision; if the inflation reports mimic the very mild results seen so far this year, a cut is very much on the table for that decision as well.”
Porter said this decision won’t help the economy all that much, but will give a “small bump” to economic sentiment and “brighten the mood” in the housing market.
Help for small businesses: Xero
“While only a small cut in interest rates, this decision should start to ease the squeeze on both household budgets and small businesses,” Louise Southall, an economist at the global small business platform Xero, said in a news release.
“Hopefully, this will mean Canadians have a bit more available to spend in their local businesses.”
Xero Small Business Insights data shows small business sales fell 3.8 per cent year-over-year in the December quarter of 2023 and has seen year-over-year declines for the past nine months.
‘Music to Canadians’ ears’: Desjardins
Randall Bartlett, senior director of Canadian economics at Desjardins, said Wednesday’s announcement will be well received by Canadians.
“Today’s interest rate announcement is no doubt music Canadians’ ears,” he said. “How many rate cuts and how quickly they come will depend heavily on the data continuing to cooperate. Regardless, rates should move gradually lower as ongoing mortgage renewals and a slower pace of population growth weigh on economic activity.”
BoC won’t return to pre-pandemic rates: Alberta Central
While many economists have pencilled in a few rate cuts for the remainder of 2024, the question remains how far the central bank might go.
Charles St-Arnaud, chief economist of Alberta Central, doesn’t think Canadians can expect a return of ultra-low rates anytime soon.
“The focus should also be on what the terminal rate in the easing cycle will be. As we have said repeatedly, the neutral rate is higher than pre-pandemic,” he wrote in a note. “This means that the extent of the rate cuts could be limited, meaning that interest rates a year from now are likely to be higher than pre-pandemic for a long period.”
• Email: bcousins@postmedia.com
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