Posthaste: 4 interest rate cuts expected this year likely won't boost Canadian economy, RBC says
It seems Canada’s largest bank isn’t expecting a whole lot of upside in the short-term from what appears to be the start of a campaign by the Bank of Canada to bring interest rates down.
Interest rate cuts won’t provide an immediate boost to Canada’s lagging economy or the debt payment relief some households are seeking, a new analysis from Royal Bank of Canada suggests.
Despite signs around the world that economies are starting to rally, including in the euro area and the United Kingdom, Canada’s economy has continued to struggle on a GDP-per-capita basis with the metric running three per cent below levels seen in 2019. Craig Wright, senior vice-president and chief economist at Royal Bank of Canada, notes that is a 10 per cent swing relative to the U.S., where per capita GDP is up seven per cent in that timeframe.
“The global economic growth backdrop has shown signs of improvement, but Canada’s economy continues to underperform,” Wright said in a report published on Wednesday. “The Bank of Canada’s pivot to cut interest rates in June is more akin to easing off the monetary policy brakes than stepping on the gas.”
Indebted households will obviously cheer rate cuts, but “the lagged impact of past interest rate increases will continue to push debt payments higher,” Wright said, estimating that moves by the central bank likely won’t lead to an uptick in growth until sometime next year. For 2024, RBC predicts real GDP will come in at one per cent rising to 1.8 per cent in 2025.
For the first time in four years, the Bank of Canada cut its benchmark lending rate by 25 basis points to 4.75 per cent on June 6, citing, among its reason for doing so, a weakening economy, excess supply and slowing inflation.
“We assume another 75
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