By Condo Culture
This week the Bank of Canada decided to hold rates for the second time in a row, signalling to some that rates are stabilizing and a rate decrease may be in our future. But when they will come down or if there’s still a chance there may be another increase on the horizon is up for debate. If you aren’t up to speed on the rate decision and what to expect next next, not to worry, we have you covered!
Here’s what some of Canada’s experts think will happen next:
“The BoC is comfortably on hold for the time being with inflation slowing in line with its forecast. The Bank's expectation that the economy will be in excess supply by the second half of the year opens the door a crack to potential easing later this year if inflation continues to slow, but there's still a lot of wood to chop on that front. In fact, the Governor explicitly stated in the press conference that market pricing of rate cuts later this year isn't the most likely scenario. We continue to expect the Bank to remain on hold until the end of 2023 before rate cuts begin in earnest in 2024.”
“A lot has happened since the January MPR. But most importantly, inflation has come down faster than the Bank had previously anticipated and financial conditions have tightened on the back of banking sector turbulence outside of our borders. Together, these look to have outweighed the sustained strength in the Canadian economy and labour market, and should work to ensure the Bank’s next move is a rate cut as early as the end of the year.”
Quoted in a recent article by CTV News, Sal Guatieri, senior economist and director at BMO Capital Markets, says he's not expecting a rate cut until "early next year."
"If we see much more weakness in the economy -- a real recession -- yes, the Bank of Canada almost certainly would swing into action in reverse gears and cut interest rates," he told CTV News Channel on Wednesday. "But we don't see that. We just see a very mild downturn and growth resuming by the end of this year."
“Barring renewed bank stress, the Fed is on track for another rate increase in May, as underlying inflation pressures remain intense. At that time, they will likely consider an extended pause to assess the impact of past rate hikes and tighter lending conditions on the economy and inflation.”
“The BoC kept its policy rate unchanged at 4.50%, in line with our expectations. It also continued its quantitative tightening policy. The statement shows that the BoC may be becoming uncertain as to whether the level of interest rate is appropriate. As such, the central bank removed its conditional commitment to leaving rates unchanged “conditional on economic developments evolving broadly in line with the MPR outlook” and added that it “continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further”. Those two changes suggest that the BoC sees the probability of further rate hikes has increased since the March meeting.”
“On the surface then it would appear our call for less restrictive policy beginning late this year is unlikely to materialize. Not so fast. There’s still a path to late-2023 cuts that becomes clearer when looking at the Bank’s updated forecasts.”
“..You have a case for policy rate divergence. More specifically, we see mounting evidence to support a BoC hold, even as the FOMC looks prepared to bang away with another 75 bps of tightening this spring.”
“The Bank of Canada delivered a mixed message today, noting that it is more confident inflation will decline in the next few months, but less confident that inflation will fall all the way to 2.0% as quickly as previously anticipated. Nonetheless, with the Bank’s forecasts for both GDP growth and inflation still looking too high to us, we continue to expect the Bank’s next move to be an interest rate cut.”
Over the last couple of weeks, the timing of rate cuts has been pushed out, with markets now expecting the first cut to occur in December (from September). This reflects the economy's cyclical rebound, which will keep underlying cyclical inflationary pressures (supercore) elevated through this year. As the BoC acknowledged, this could make "getting inflation the rest of the way back to 2%" more difficult. Given this backdrop, we think the best policy for the BoC is to keep rates stable until cyclical inflation dynamics turn decisively lower.
While other central banks have yet to join the BoC in signaling a firm pause, we think most will soon conclude it’s time to move on from raising rates.
The BoC’s pause continued in April and Governor Macklem pushed back on market pricing for rate cuts later this year. We continue to think the BoC will be on hold for the remainder of 2023.”
We’d love to hear what you think! Drop us a line and let us know where you think things are headed with rates and the market overall.
Have a happy sunny Friday everyone!