Bank of Canada is set to make an interest rate announcement on Wednesday. (REUTERS/Patrick Doyle) (REUTERS / Reuters)
The Bank of Canada cut its benchmark interest rate for the third consecutive time on Wednesday, leaving the door open to further cuts while warning that the Bank needs to guard against the risk that inflation falls below two per cent.
Wednesday’s 25 basis point cut, which brings the Bank’s policy rate to 4.25 per cent, was widely expected by economists. Analysts expect more cuts to come this year, with financial markets betting that there is a 93 per cent chance of a 25 basis point cut in October, according to Reuters, while another rate cut in December is fully priced in.
Some economists also say that weaker-than-expected growth could mean a larger 50 basis point cut is on the table. While Bank of Canada Governor Tiff Macklem said the Bank’s governing council had discussed the potential scenario of a 50 basis point cut, it opted for a 25 basis point cut, citing continued easing of broad inflationary pressures. Macklem reiterated that if inflation continues to ease broadly in line with the Bank’s previously released forecasts, “it is reasonable to expect further cuts in our policy rate.”
The governor also highlighted for the second decision in a row the “push and pull of opposing forces” on inflation. Overall weakness in the economy is pulling inflation down, while high prices for shelter and some services are holding inflation up.
“As outlined in our July forecast, inflation is expected to ease further in the months ahead. It may bump up later in the year as base-year effects unwind, and there is a risk that the upward forces on inflation could be stronger than expected,” Macklem said.
“At the same time, with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”
While the central bank cited progress on inflation, which fell to 2.5 per cent in July, it also flagged downside risks to the economy. The Canadian economy grew faster than expected in the second quarter, although that was largely due to government spending and business investment. The Bank had expected growth to strengthen in the second half of the year, and it noted that “recent indicators suggest there is some downside risk to this pickup.” Preliminary data suggest economic activity was soft in June and July, and employment growth has stalled in recent months.
We care as much about inflation being below the target as we do above. The economy functions well when inflation is around 2 per cent.”Bank of Canada Governor Tiff Macklem
“As inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2 per cent target,” Macklem said.
“We care as much about inflation being below the target as we do above. The economy functions well when inflation is around 2 per cent.”
50bp cut may be needed if economy continues to slow
Desjardins managing director and head of macro strategy Royce Mendes said in a research note on Wednesday that with the economy already operating in slack, a rebound is necessary to keep inflation from falling below two per cent.
“That said, even after three rate cuts, we don’t believe the central bank has done enough to see such a rebound,” Mendes wrote, noting that the housing market has “barely” responded to lower rates amid affordability challenges.
“To unlock the savings that households have built up, we think the Bank of Canada will need to continue cutting interest rates at each of its decision dates until at least the middle of next year. With growth faltering instead of picking up as officials had forecast back in July, the risk is that central bankers will need to slash rates in October by 50 basis points instead of 25 basis points to spur a recovery.”
Some economists are still pricing in 25 basis point cuts.
“While markets had put small odds on a 50 basis point move, the Bank still cited two-sided risks to inflation, while noting that June/July data suggest downside risks to their growth outlook,” CIBC Capital Markets economist Avery Shenfeld wrote in a research note.
“For now, we’re calling for two more 25 basis point moves this year, enroute to a roughly 2.5 per cent overnight rate next year, but a disappointment in upcoming jobs data could still compel a bolder pace of easing, as could the need for a significant forecast downgrade in the October (Monetary Policy Report.)”
Still, Macklem said that a soft landing is not off the table for the central bank.
“We’re certainly a lot closer to the landing than we were. Inflation is much closer to the target than we were a year ago, and the economy, while it has certainly slowed, it hasn’t weakened sharply,” Macklem said.
“But we haven’t landed the economy yet. The runway is in sight, but we have not landed it yet.”
LIVE COVERAGE IS OVER37 updates
Alicja Siekierska
Canadian banks lower prime rates following BoC cut
Canada's biggest banks reduced their prime rates Wednesday afternoon after the Bank of Canada cut interest rates for the third consecutive time.
RBC, BMO, TD, Scotiabank and CIBC each lowered their prime rates by 25 basis points, from 6.7 per cent to 6.45 per cent. The new rates are effective Sept. 5.
The prime rate is the annual interest rate that banks and financial institutions use to set interest rates for variable-rate mortgages, lines of credit, and some other loans.
Alicja Siekierska
Royal Bank the first to lower its prime rate
RBC Royal Bank decreased its prime rate in response to the Bank of Canada's interest rate cut announcement on Wednesday. (Getty Images) (JHVEPhoto via Getty Images)
RBC Royal Bank decreased its prime rate by 25 basis points following the Bank of Canada's rate cut, bringing it to 6.45 per cent from 6.7 per cent. The new rate is effective Sept. 5.
The other major banks are expected to follow suit.
John MacFarlane
Vancouver home sales plunge in spite of rate cuts
The latest real estate data out of Vancouver are underlining a broader unenthusiastic mood among Canadian would-be homebuyers, even as interest rates have begun to fall.
Sales in August dropped 17.1 per cent from a year earlier, according to Greater Vancouver Realtors figures cited by the Canadian Press. Home prices have largely held, with average prices dropping just under one per cent from a year ago and 0.1 per cent from July.
Greater Vancouver Realtors' director of economics and data analytics Andrew Lis said buyers remained in a “holding pattern,” largely unmoved by the first two BoC cuts in June and July of this year.
John MacFarlane
Why stop now? Where economists stand on future cuts
Randall Bartlett, economist, Desjardins
Expectations for 2024: Cuts of 25 bps at both October and December meetings
Forecast for 2025: “Six more in 2025,” bringing the overnight rate to 2.25 per cent.
Taylor Schleich & Warren Lovely, economists, National Bank of Canada
Expectations for 2024: “Continued 25 basis points cuts at each of the remaining meetings in 2024.”
Forecast for 2025: Cuts should continue “likely well into 2025 too.”
Douglas Porter, chief economist, BMO
Expectations for 2024: “For now, we look for the Bank to cut rates to 3.5% by January.” (Note there is another BoC announcement scheduled for January 29, 2025.)
Forecast for 2025: “… to 3.0% by next June, but the risks tilt to the Bank going faster than that, and potentially further.”
Avery Shenfeld, chief economist, CIBC
Expectations for 2024: “For now, we’re calling for two more 25 bp moves this year…”
Forecast for 2025: “… enroute to a roughly 2.5 per cent overnight rate next year, but a disappointment in upcoming jobs data could still compel a bolder pace of easing, as could the need for a significant forecast downgrade in the October MPR.”
Claire Fan, economist, RBC
Expectations for 2024: Another cut in October and "a pause this coming December and next January."
Forecast for 2025: "Four consecutive rate cuts" after the January pause, with the overnight rate "lowered to three per cent by the end of Q3 next year."
James Orlando, economist, TD
Expectations for 2024 and 2025: “We have another 175 bps in cuts cued up through next year,” which would bring the overnight rate to 2.5 per cent.
John MacFarlane
Home ownership still out of reach for many: President of Right at Home Realty
Single-family homes remain a relative rarity on the real-estate market, Right at Home Realty president John Lusink says. (Photo by Artur Widak/NurPhoto via Getty Images) (NurPhoto via Getty Images)
It will take at least two more rate cuts before housing market activity picks up “beyond a superficial uptick,” John Lusink, president of Right at Home Realty, said in a note to Yahoo Finance Canada.
Despite a growing inventory, the homes available are “not matching what buyers are looking for,” Lusink wrote. He expects slightly more action in the fall, but not at the pace of recent years.
“There is ample opportunity in the condo segment, but single-family homes are few and far between, particularly as older homeowners are reluctant to downsize in these market conditions. As a result, home ownership is still out of reach for many.”
Alicja Siekierska
Bank of Canada takes 'blander approach' to communicating Wednesday's cut
CIBC Capital Markets chief economist Avery Shenfeld noted that the statement and opening remarks issued alongside the Bank of Canada rate cut on Wednesday "were mostly a recitation of publicly available facts."
"That contrasted somewhat with some prior meetings, in which the press conference statement gave some insights into what the Governing Council deliberated over in terms of the policy decision," Shenfeld wrote in a research note. Both the statement and opening remarks were more brief than the ones given alongside the Bank's July decision.
"This blander approach might have been influenced by a desire to keep their cards closer to their chest ahead of employment data and a Fed rate decision in upcoming days. By the time they release the summary of deliberations on September 18th, they might be prepared to give more insights into their thinking."
John MacFarlane
BoC has likely tempered its economic outlook: Desjardins
Desjardins' projections for economic growth and inflation are lower than those in the last BoC forecast. (Photo by Zou Zheng/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)
Randall Bartlett, Desjardins’ senior director of Canadian economics, says language in today’s announcement indicates “the Bank may be estimating more slack in the Canadian economy than it had been assuming in July.”
Desjardins’ own tracking shows annualized real GDP growth for Q3 2024 coming in at around half the 2.8 per cent forecast in the BoC’s July 2024 Monetary Policy Report. “Indeed, we’re of the view that the economy is likely to underperform the Bank’s optimistic July outlook,” Bartlett writes, with Desjardins’ projections for CPI and GDP below the BoC’s through next year.
As such, Desjardins is maintaining its forecast for the overnight rate from its August 2024 outlook, projecting two 25 bp cuts this year and six more in 2025, bringing the policy rate down to 2.25 per cent by the end of next year.
Jeff Lagerquist
Macklem more dovish, rate cuts may come ‘faster than expected’: Economists
Bank of Canada Governor Tiff Macklem has left the door open to 50 basis point rate cuts, according to experts, who point to more dovish language from the central banker.
“If we need to, we are ready to take a bigger step,” Macklem said on Wednesday,” but only, “if the economy was significantly weaker, and if inflation was significantly weaker than expected.”
The BoC delivered its third-consecutive 25 basis point cut to its policy rate on Wednesday.
Capital Economics North America economist Stephen Brown said that Macklem’s emphasis on the need to “increasingly” guard against the risk that Canada’s economy becomes too weak is a more dovish tone than the June and July rate decisions.
“That emphasis on the downside risks leaves the door open to a larger 50bp cut at some point during this loosening cycle,” Brown said.
CPA Canada chief economist David-Alexandre Brassard sees the BoC as less concerned now that rising wages could cause inflation to reaccelerate.
“The Bank of Canada is truly focused on reducing the impact of restrictive monetary policy, given the surprising performance of the economy in the second quarter did not stop it from cutting rates,” he said. “We shouldn’t be surprised if the current interest rate-easing cycle proves faster than expected.”
John MacFarlane
It’s July all over again: National Bank economists
National Bank of Canada economists Taylor Schleich & Warren Lovely noted the similarity of language in the BoC announcements today and on July 24, highlighting Macklem’s line that it is “reasonable” to expect further cuts and the continued emphasis on downside risk.
“At the margin,” they write, “there appears to be a bit more confidence on the inflation outlook as shelter prices are seen as ‘starting to slow.’”
What stood out, the economists wrote, was the BoC’s assertion that they “need” growth to pick up, and tone and language that imply a cut larger than 25 bps is possible. “That’s appropriate in our view given the balance of risks in the labour market and on the growth outlook,” Schleich and Lovely write.
National Bank projects cuts at the BoC’s final two meetings of 2024 “and likely well into 2025 too.”
Alicja Siekierska
TSX stocks rise after BoC cut
The Toronto Stock Exchange rose slightly on Wednesday after the Bank of Canada cut its benchmark interest rate for the third time in a row.
As of 11:31 a.m. ET, the Toronto Stock Exchange's S&P/TSX Composite Index was up 46.80 points, or 0.2 per cent, at 23,089.25.
According to Reuters, at least ten sectors on the TSX logged gains, led by the healthcare sector, which rose 1.44 per cent. The rate-sensitive real estate sector gained 1.4 per cent, while capped communications sector added 1 per cent.
Jeff Lagerquist
Macklem: House prices could still rise, but shelter costs 'starting to roll over'
The Bank of Canada flagged high shelter costs as the top contributor to overall inflation as it cut its benchmark lending rate on Wednesday.
Governor Tiff Macklem told reporters that prices in this essential category, which includes items like rent and home repair, are beginning to ease. However, he clarified this does necessarily mean houses will become more affordable.
"Shelter inflation is still much too high, but it looks like it is starting to roll over. It is starting to come down," Macklem said. "I'm not saying that that means house prices are coming down. House prices could well actually pick up a bit, with overall inflation in shelter price still coming down."
John MacFarlane
Macklem: 'We haven't landed the economy yet. You know, the runway's in sight, but we have landed it yet.'
John MacFarlane
Population surge has had 'big effect' on economy: Rogers
Discussing Canada’s recent rapid population growth, deputy governor Carolyn Rogers acknowledged that “the surge in population has had a big effect on the Canadian economy.”
She noted that while that growth helped take the pressure off a hot labour market a few years ago, the dynamics have since changed.
“Where we're at now is the Canadian economy is at a point where it's having trouble absorbing the number of workers into the job rate,” she said.
“So, we haven't seen a big increase in unemployment, but we have seen vacancies come down, and we are seeing the unemployment rate tick up a bit. So it will be important that that influx of labour supply starts to match our ability to absorb it.”
John MacFarlane
BMO's chief economist sees signs BoC could cut deeper, faster
Reading between the lines of Tiff Macklem’s speech, BMO chief economist Douglas Porter says that concern about the job market has become pronounced at the BoC, and that “persistent solid wage growth may be the single biggest factor keeping the Bank from being even more aggressive.”
Porter sees hints that the BoC could make a deeper cut in the months ahead, but says the expectation is for more 25 bps cuts “into early next year,” with the overnight rate at 3.5 per cent by January 2025 andthree per cent by June. However, he says “the risks tilt to the Bank going faster than that, and potentially further.”
Jeff Lagerquist
Macklem: 'We also discussed scenarios where it could be appropriate to cut by 50 basis points'
Jeff Lagerquist
BoC to cut twice more in 2024: CIBC
The Bank of Canada's third consecutive quarter-point rate cut on Wednesday reflects a "cautious approach," according to CIBC chief economist Avery Shenfeld.
"It’s said that victory goes to the bold, but the Bank of Canada went with the more cautious approach of yet another quarter-point rate cut, leaving rates still well above where they will have to head to get the economy really moving again, now that inflation is less of a threat," he wrote in a research note on Wednesday.
However, Shenfeld says weak incoming economic data could prompt swifter cuts from the central bank.
"For now, we’re calling for two more 25 bps moves this year, en route to a roughly 2.5 per cent overnight rate next year," he added.
"But a disappointment in upcoming jobs data could still compel a bolder pace of easing."
John MacFarlane
BoC may be 'behind the curve': TD's Orlando
There are now signs that the BoC will need to play catch-up in the months ahead, TD Economics senior economist James Orlando writes. Last week’s GDP numbers suggest that “the central bank’s growth outlook for 2024 Q3 looks like a fantasy,” Orlando writes, and “risks are mounting that the BoC is behind the curve.”
TD expects another 175 bps in cuts by the end of 2025, Orlando says, with the 4.25 per cent overnight rate still “significantly restrictive” and unemployment figures weighing alongside the weak GDP print.
“While the pace of cuts (25 bps per meeting) seems entrenched at the moment, the BoC has a long way to go to get monetary policy in line with the state of the economy.”
Jeff Lagerquist
More cuts needed to revive Canada’s housing market: experts
Canada’s housing market will be little-changed by Wednesday’s 25 basis point cut from the Bank of Canada, according to mortgage and real estate experts.
“Housing sales have remained sluggish all year, and this rate decrease is unlikely to be enough to bring housing market activity back to normal levels,” said Leah Zlatkin, a licensed mortgage broker and expert commentator for LowestRates.ca. “The overnight rate only immediately impacts adjustable variable rate mortgages. The vast majority of mortgages that Canadians hold are fixed-rate mortgages, which follow the bond market.”
Victor Tran, a mortgage and real estate expert at RATES.CA, says a “significant decrease” in borrowing costs is needed to revive housing activity.
“It’s going to take more time,” Tran said. “Even a drop of a full percentage point from current mortgage rates would not result in a significant increase in buying power given persistently high home prices.”
Phil Soper, president and CEO of Royal LePage, says pent up demand could push up prices, if the Bank of Canada continues to lower its trend-setting rate.
“Once the backlog of sidelined buyers is released into the market, pent-up demand will drive prices higher,” he said.
John MacFarlane
Latest cut welcome, but without more, housing crisis will get worse: Fitzrovia CEO
"We need to see even lower interest rates and more government incentives to catalyze housing starts," Fitzrovia CEO Adrian Rocca says. (Photo by Creative Touch Imaging Ltd./NurPhoto via Getty Images) (NurPhoto via Getty Images)
Today’s cut will help with housing starts, but interest rates need to fall further to head off Canada’s housing crisis, says Adrian Rocca, CEO of rental property developer Fitzrovia. At present, he says the situation is on track to get worse.
“At current levels, we are facing an even larger scarcity of supply two to three years from now,” Rocca said in a statement emailed to Yahoo Finance Canada.
Today’s cut will reduce costs and make financing more accessible, Rocca says, but new builds are still not at the levels of previous levels, and “for us to accelerate and the industry as a whole to build at the pace required to actually address the housing crisis, we need to see even lower interest rates and more government incentives to catalyze housing starts.”
Alicja Siekierska
Macklem highlights ‘push and pull of opposing forces’ on inflation
For the second decision in a row, Governor Tiff Macklem highlighted the “push and pull of opposing forces” on inflation.
In a prepared opening statement, Macklem said that overall weakness in the economy is pulling inflation down, while price pressures in shelter and some other services are holding it up.
“As outlined in our July forecast, inflation is expected to ease further in the months ahead. It may bump up later in the year as base-year effects unwind, and there is a risk that the upward forces on inflation could be stronger than expected,” Macklem said.
“At the same time, with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”
Still, Macklem said if inflation continues to ease broadly in line with the bank's forecasts, it is reasonable to expect further interest rate cuts.
John MacFarlane
Key takeaways from Governor Macklem's opening statement, coming at 10:30 a.m. ET
On employment:
“The unemployment rate has risen over the last year to 6.4% in June and July. The rise is concentrated in youth and newcomers to Canada, who are finding it more difficult to get a job. Business layoffs remain moderate, but hiring has been weak. The slack in the labour market is expected to slow wage growth, which remains elevated relative to productivity.”
On forecasts for inflation:
“As outlined in our July forecast, inflation is expected to ease further in the months ahead. It may bump up later in the year as base-year effects unwind, and there is a risk that the upward forces on inflation could be stronger than expected. At the same time, with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”
On the inflation target:
“We care as much about inflation being below the target as we do above. The economy functions well when inflation is around 2%.”
On housing:
“With the share of CPI components growing above 3% now around its historical norm, there is little evidence of broad-based price pressures. But shelter price inflation is still too high. It remains the biggest contributor to overall inflation, despite some early signs of easing.”
On future cuts:
“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate. We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time.”
Alicja Siekierska
Bank of Canada highlights easing of inflation as it cuts for third time
“Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up,” the Bank of Canada said in a written statement on Wednesday.
“Governing Council is carefully assessing these opposing forces on inflation.”
The central bank said future rate decisions will be guided by incoming data and the impact of that data on the inflation outlook.
BANK OF CANADA CUTS BENCHMARK RATE BY 25 BPS TO 4.25 PER CENT
Alicja Siekierska
The latest data driving the BoC's decision
Here are the latest data the Bank of Canada has to guide its interest rate decision.
Inflation fell to 2.5 per cent in July, marking the slowest increase in the Consumer Price Index (CPI) since March 2021.
Q2 GDP: 2.1% annualized (vs. 1.8% annualized in Q1)
June GDP: 0% change on a monthly basis
Preliminary July GDP estimate: 0% change on a monthly basis
John MacFarlane
More arguments against a 50 basis point cut
In a morning note, Derek Holt, vice-president and head of capital markets economics at Scotiabank says a 50 basis point cut would be a “policy error” and views it as unlikely given BoC governor Tiff Macklem’s stated commitment to data dependence.
Holt points out the negative signalling effect a larger cut could have, but also says the market could become enthusiastic about more larger cuts. They “would likely move to price another outsized move and push the BoC, which may not be comfortable doing so and could risk disappointing markets later,” he writes.
Holt also argues that the BoC should save a bigger cut in case one is genuinely needed. “They should keep their powder dry for potentially more exigent circumstances, like market dysfunction (not just price discovery) or a more alarming turn lower in the data.”
Alicja Siekierska
Third consecutive cut may set stage for a housing rebound
While interest rates have dropped as the Bank of Canada continues on its loosening cycle, the reaction in the housing market has so far been muted. The Canadian housing market softened slightly in July from a month earlier, as sales fell and new listings inched up, according to the Canadian Real Estate Association (CREA).
But some expect that will change with a third consecutive rate cut from the central bank.
"While it wasn't apparent in the July housing data from across Canada, the stage is increasingly being set for the return of a more active housing market," CREA chair James Mabey said in a statement.
"Real estate market activity has been resistant to the rate cuts we've received so far, but that could soon change as the impact of additional rate decreases compounds and materially improves affordability conditions for borrowers," Penelope Graham, mortgage expert at Ratehub.ca, said in a statement.
John MacFarlane
50 bp cut unlikely, unless BoC thinks economy is 'much worse than previously thought': Global X
Most economists expect another 25 bps cut from the BoC this morning, but there have been rumblings about a deeper 50 bp drop. Brooke Thackray, a research analyst at Global X, an exchange-traded fund provider, argues the only scenario where this could happen is if the BoC has advance knowledge of labour data to be released this Friday “and it is much worse than expected.”
A larger cut “would signal that economic conditions are much worse than previously thought,” Thackray writes, but he says most available indicators are to the contrary. “The Canadian economy is stable at this point,” he says, with inflation unresolved but reasonably low and GDP figures acceptable. The 6.4 per cent unemployment rate “is a lagging indicator and reflects the economic conditions of the past. Although the rate is still low, there is a definite trend higher from the 4.9 per cent low in 2022. Nevertheless, a 6.4 per cent unemployment rate does not warrant a 50 bps point cut this week.”
John MacFarlane
Accentuate the positive
Much of the conversation about rate cuts has centred around a softening economy, with sporadic warnings about signs of a recession lending fuel to some Canadians' gloomy economic mood. But what if the reality is not as bad as that gloomy outlook?
That's what Scotiabank economist Rebekah Young suggested in a recent paper, in which she assails "fearmongering" about a recession and notes various data showing a surprisingly strong economy — household net worth, for example, is "roughly $20,000 above what would have been projected based on trend growth since 2019."
Given the economic challenges of the era, Young argues that a "rational optimism" is needed to avoid "continuing to talk ourselves into decline."
Jeff Lagerquist
Stock indices to 'jump around' until the Fed weighs in: TD
Stock indices have gone on a wild ride since the Bank of Canada and the Federal Reserve's apparent shifts in tone from fighting inflation to ensuring soft landings for their respective economies.
North American markets tumbled in early August when weaker-than-expected U.S. economic data spooked investors. Fears about an unravelling of the U.S. economy weighed on Canada's main stock index, adding to concerns over cash-strapped consumers north of the border.
"This is the stage where markets typically get nervous on whether the Fed has got the timing right, evidenced by recent bouts of volatility," TD Bank chief economist Beata Caranci wrote in an Aug. 26 research note. "We can expect to see pricing jump around between a Fed that needs to act urgently to one that can move in a measured way."
"In all circumstances, one prediction will hold firm: the Fed will cut interest rates in September, kicking off a prolonged cycle," Caranci added.
"This is not a one-and-done deal."
Alicja Siekierska
TSX futures slip before Bank of Canada decision
As investors eagerly await the Bank of Canada's interest rate announcement this morning, futures tied to the Toronto Stock Exchange slipped on Wednesday.
According to Reuters, September futures on the S&P/TSX index were down 0.2 per cent at 6:02 a.m. ET on Wednesday, as crude and metal prices declined.
The TSX ended more than 1 per cent lower on Tuesday, tracking declines in materials and energy stocks.
John MacFarlane
Other central banks have been (mostly) quiet
Since the Bank of Canada's second rate cut on July 24, activity at other major central banks has been minimal, though not exactly quiet.
The European Central Bank — which sets monetary policy for countries in the eurozone, including G7 members France, Germany and Italy — made a preliminary cut on June 6, a day after the BoC broke the ice, but has had no meetings scheduled since then.
The Federal Reserve held its rate steady at 5.35 to 5.50 per cent at its meeting on July 31, with markets now expecting it will cut when it next meets on Sept. 12. Earlier on July 31, the Bank of Japan, which has held rates near zero for years due to chronic disinflation, raised its rate 15 basis points to 0.25 per cent. It was a move that some argue was a catalyst for global market volatility in the days that followed.
How hawkish or dovish are Canada's central bankers?
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications so far in 2024.
RBC's analysis uses natural language processing to detect dovish and hawkish statements. (RBC Capital Markets)
Here's 2023 for comparison:
RBC's analysis uses natural language processing to detect dovish and hawkish statements. (RBC Capital Markets)
"We need growth to pick up so inflation does not fall too much, even as we work to get inflation down to the 2 per cent target," Macklem said in a prepared opening statement.
Economists noted the dovish tilt from the central bank.
"One gets the sense that further rate cuts will now only be dissuaded by the data, cuts no longer need to be persuaded by them," BMO Capital Markets deputy chief economist Michael Gregory wrote in aresearch note.
Jeff Lagerquist
Population growth 'clouded' BoC's view of the economy
Uncertainty over Canada's rapid population growth has muddied the Bank of Canada's view of the economy, prompting discussion about whether certain demographics should be removed from the central bank's calculations.
"Members agreed that uncertainty about population growth was contributing to uncertainty about the economic outlook," BoC policymakers wrote in their latest summary of deliberations published earlier this month. "Members expected consumer spending to strengthen in 2025, even as population growth slowed. However, this outlook was clouded by differences among segments of the Canadian population."
According to Statistics Canada data released last Friday, GDP per capita fell 0.1 per cent in the second quarter, marking a fifth consecutive quarterly decline. That means the economy is not expanding fast enough vis-a-vis population growth.
However, Derek Holt, vice-president and head of capital markets economics at Scotiabank, says the Bank of Canada "should not treat all bodies as having the same impact" on the economy.
"Students, temp foreign workers and asylum seekers are not contributing one-for-one in proportionate terms to GDP growth as others, so why treat them as such?" Holt wrote in an Aug. 28 research note.
"The economy is performing better in real per-capita GDP terms than some say because many non-permanent residents should be removed from the calculations."
Fixed mortgage rates, however, don't move in lockstep with the Bank's rate cuts and are tied to the bond market. Bond markets have likely already priced in a rate cut today, although the BoC's messaging on further cuts may be a factor for investors to consider.
A rate cut would also mean Canada's top banks will follow suit and lower their prime lending rates. The prime lending rate at the country's largest banks currently sits at 6.7 per cent. With a 25-basis-point cut, prime rates would sit at 6.45 per cent.
Financial stress, affordability concerns remain high — especially among younger Canadians
Younger Canadians are more likely to feel stretched to their financial limits. (Photo by Creative Touch Imaging Ltd./NurPhoto via Getty Images) (NurPhoto via Getty Images)
Two cuts into the BoC's easing cycle, various statistics show Canadians are looking for more financial relief. High prices have had many Canadians feeling stretched to their financial limits, a recent Statistics Canada report says, with 45 per cent saying they struggle to meet their day-to-day expenses, up from 33 per cent two years earlier. The numbers are higher among younger adults, with just over half of people between 25 and 44 years old saying rising prices have affected their ability to get by.
A similar proportion of Canadians from 15 to 34 years old are very concerned about the affordability of housing, the report says — a statistic that aligns with a Royal LePage report that found only around half of Gen Z and millennial respondents (54 per cent) believe homeownership is achievable. Many have made adjustments such as giving up travelling or delaying a move out of their parents' home in order to save for a down payment.
John MacFarlane
Unemployment in sharp focus
Canada's rising unemployment rate is surely under close BoC scrutiny, National Bank economists Taylor Schleich and Warren Lovely wrote in a preview report last week. Schleich previously argued that unemployment could hit seven per cent by year-end without immediate further interest rate cuts.
The economists now expect that number to be reached regardless of the BoC’s moves and say "there will be a growing focus on the labour market going forward" at the central bank.
"We'd stress that a quick bounce-back is unlikely and the jobless rate should continue marching towards seven per cent this year. That should keep a steady dose of rate cuts coming in 2024 and beyond."
Investment management company Cove Street Capital recently released its “Small Cap Value Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. The firm concluded an unsatisfactory fiscal year of operations. It owns a few not-so-good holdings and some delayed-gratification positions since the market generally dislikes small-cap value stocks. In the third […]
ENGLEWOOD, Colo., October 08, 2024--Forget the turkey and eggnog – this holiday season, many are finding solace in an unexpected place: their cleaning supplies. A recent Bona survey has uncovered a surprising twist in the age-old tradition of holiday housekeeping. Rather than succumbing to social pressures, most (77%) in North America are wielding mops and dusters to combat holiday stress, transforming the chore of cleaning into a form of festive self-care.
IRVINE, Calif., October 08, 2024--Kama Moseley, JD, PLCS, CAPI, has joined Alliant Insurance Services as Senior Vice President, Producer with Alliant Private Client.
BOTHELL, Wash., October 08, 2024--Immunome, Inc. (Nasdaq: IMNM), a biotechnology company focused on the development of first-in-class and best-in-class targeted oncology therapies, today announced the appointment of Roee Shahar as Executive Vice President, Commercial. Mr. Shahar brings over two decades of experience, including successfully launching and commercializing oncology and hematology products at Seagen, Pfizer (following the acquisition of Seagen in December 2023) and Eli Lilly & Compan
HERNDON, Va., October 08, 2024--EdgeConneX announces Masahiko Inoue as Head of Japan to develop the strategic growth of EdgeConneX in the Japanese market.
Heswall, United Kingdom--(Newsfile Corp. - October 8, 2024) - John Knight Glass, a leading manufacturer and supplier of bespoke glazing solutions throughout the UK, is excited to announce the release of its new structural glazing range. Having experienced a 100% increase in interest in their structural glazing products, the new range has been developed to cater for the evident growth in demand for these products. Taking inspiration from commercial glazing while enhancing the overall ...
WINDSOR MILL, Md., October 08, 2024--Advanced Defense Technologies Inc. (ADTI), a leading contract manufacturer of quality military and civilian electronics, today announced that it has been subcontracted by Roboteam, a prominent developer of tactical unmanned platforms for defense and security missions, to support a major deal with the U.S. Marine Corps.
Investors have overhauled their views on interest rate cuts after a blowout jobs report, ahead of a week of key inflation data and the start of earnings season.
WEAVERVILLE, N.C., October 08, 2024--Zamnesia, Europe’s leading online Smartshop, announced its official launch in the United States today, bringing its coveted cannabis seeds, THCa products, functional mushroom edibles, grow kits and home grow expertise to American consumers. With over a decade of excellence in online retail, genetics and cultivation, Zamnesia is ready to take the U.S. market by storm, offering responsibly sourced products and quality customer support for those seeking top-tier
CORAL GABLES, Fla., Oct. 08, 2024 (GLOBE NEWSWIRE) -- Catalyst Pharmaceuticals, Inc. ("Catalyst" or "the Company") (Nasdaq: CPRX), a commercial-stage biopharmaceutical company focused on in-licensing, developing, and commercializing novel therapies for patients with rare diseases, today announced that it has contributed $100,000 to the American Red Cross to support ongoing relief efforts for communities impacted by Hurricane Helene. "At Catalyst, our commitment to the community is unwavering, pa
Mourners wept and monks prayed at a cremation ceremony Tuesday in a small town in central Thailand for 23 young students and teachers who died in last week’s bus fire on a school field trip. Six teachers and 39 elementary and junior high school students were on the bus when it caught fire on Oct. 1 on a highway in Pathum Thani, a northern suburb of Bangkok. After forensic work in Bangkok made positive identifications of the badly burnt bodies, the victims' remains were were returned to their hometown for funeral rites that began last week.
Investment management company Cove Street Capital recently released its “Small Cap Value Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. The firm concluded an unsatisfactory fiscal year of operations. It owns a few not-so-good holdings and some delayed-gratification positions since the market generally dislikes small-cap value stocks. In the third […]
NEW YORK (AP) — When Vice President Kamala Harris sat down for an interview with podcaster Alex Cooper, the conversation didn’t start by parsing policy positions. The goal, Cooper told the Democratic nominee, was “to get to know you as a person.”
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