Recent updates suggest that Canada’s anticipated interest rate cuts will be both smaller and later than previously expected. Despite earlier forecasts of significant reductions, experts now believe the cuts won’t reach the near-zero levels seen during the COVID-19 pandemic.
Moshe Lander, a senior lecturer in economics at Concordia University, explained to Yahoo Finance Canada that such low rates are unlikely without another major economic crisis. “No, we’re not going back to that, in the absence of some economic catastrophe on a scale of COVID,” Lander remarked.
The Bank of Canada (BoC) has kept its benchmark rate steady at five percent, with potential future cuts dependent on continued easing of inflationary pressures. Initial predictions of about six cuts in 2024 have been pared back, with more conservative estimates now targeting a rate of 3.5 percent by the end of the year.
Diana Avigdor, head of trading at Barometer Capital Management, highlighted that economic data coming in hotter than expected is pushing rate cuts further away and reducing their magnitude, leading to a prolonged period of higher rates.
Economists’ views on the timing and extent of rate cuts vary. Some, like those from CIBC and BMO, have scaled back their expectations, while Desjardins Group maintains a slightly more optimistic outlook due to factors like federal caps on immigration influencing economic forecasts.
The BoC has also revised its nominal neutral interest rate range to between 2.25 percent and 3.25 percent, indicating a recalibration of long-term rate expectations. Governor Tiff Macklem emphasized that the primary goal remains inflation stabilization, unaffected by the fluctuating consumer mortgage or investment rates.
As the economic situation develops, the BoC is prepared to adjust its approach in response to any unexpected economic shifts or global events, maintaining a focus on keeping inflation stable. ( Source Yahoo Finance)