Another hold on interest rates risks further damage to the economy

financialpost.com:

With Canada’s latest inflation figures paving the way for a policy rate cut, some economists worry another hold by the Bank of Canada could further damage the economy.

Earlier this week, Statistics Canada reported Canada’s annual rate of inflation fell to 2.7 per cent in April, comfortably within the Bank of Canada’s target range of between one and three per cent.

David Rosenberg, founder and president of Rosenberg Research, recently told the Financial Post’s Larysa Harapyn that he expects a rate cut at the central bank’s next announcement in June.

“I think the bank should be cutting rates at the next meeting,” he said in the video interview. “If they don’t, I think providing some hard guidance for a move at the following meeting would be in store.”

“The longer they wait, the more they’re going to have to do.”

Rosenberg said the economy is currently in excess supply, and in times of excess supply the policy rate has historically hovered around 2.5 or three per cent.

“That’s how far the Bank of Canada has to go, and I don’t know what the reason would be – I really don’t – as to why they would be dragging their heels,” he added.

Charles St-Arnaud, chief economist with Alberta Central, echoes Rosenberg’s sentiment that a further hold to interest rates would hurt the economy.

“If the (Bank of Canada) doesn’t cut, it would be a matter of extreme caution in our view, rather than suggesting that upside risks to inflation remain a concern,” he wrote in a note to clients earlier this week.

In terms of how many cuts to expect in 2024, Rosenberg is predicting Canadians could see several steps of mortgage relief this year.

“I think the bank should be cutting rates and cutting more than once,” he said.