Bank of Canada expected to cut interest rate Wednesday with no signs of stopping there
The Bank of Canada is widely expected to cut its policy interest rate by 25 basis points on Wednesday and there are few indications that it will stop there, economists say.
A quarter-point cut this week would be the third in a row and bring the overnight rate down to 4.25 per cent. Wednesday’s decision comes as the central bank has signalled a more dovish tone in recent months, with economists predicting cuts at every meeting for the remainder of the year and into 2025.
“I don’t think they’ll signal that’s the end of the road; I think they’ll maintain openness to continuing to do more,” said Beata Caranci, chief economist at Toronto-Dominion Bank. “But in typical bank speak, I would expect they’ll continue to indicate they are data dependent and watching how the data evolves.”
The consumer price index hit 2.5 per cent in July, its slowest pace in nearly three years. The Bank of Canada has forecast inflation will return to its two per cent target by the end of next year.
“The last CPI print, when we looked purely at the number of components, nearly 50 per cent were growing at less than one per cent, so that’s pretty significant,” said Jimmy Jean, chief economist at The Desjardins Group. “The story about inflation and why it’s still at two and half per cent, is largely about housing and it’s largely about rents in particular.”
Jean says no amount of monetary policy tightening can have an impact on housing, given it’s a supply and demand issue.
Following the central bank’s policy rate announcement in July, Bank of Canada Governor Tiff Macklem said the central bank’s “balance of risks is shifting,” meaning as inflation moves back to target, the bank is paying more attention to the downside risks to inflation and the economy.
Read more on financialpost.com
