Posthaste: Gloomy surveys suggest Bank of Canada may have left rate cuts too late
A rather gloomy outlook from the Bank of Canada‘s business and consumer surveys yesterday had some economists questioning whether the central bank might have waited too long to pull the trigger oninterest rate cuts.
The surveys taken in April and May signalled weak economic growth, a slowing job market and a diminishing threat of inflation.
“All that raises the prospect that the bank left it a little late to begin cutting interest rates and increases the chance of the bank cutting again next week,” said Stephen Brown, deputy chief North American economist at Capital Economics.
The Bank of Canada made its first cut in four years last month, reducing its benchmark interest rate from 5 to 4.75 per cent. After Monday’s surveys, markets are betting on a 78 per cent chance of another cut at its next meeting on July 24.
The surveys sketch a picture of a weakening economy and strained consumers.
Businesses reported that sales growth over the past 12 months has been below average and is not expected to increase, with discretionary spending particularly weak.
“One thing we’ve repeated often as rates began to rise and mortgages began to reset higher was that Canadians will pay their mortgage first, but likely cut back on those discretionary items — there’s even more evidence of that here,” said Robert Kavcic, senior economist at BMO Capital Markets.
More households expect their financial situation to deteriorate in the next year, with the possibility of losing their job or failing to make a debt payment also rising.
“Overall, the survey shows that consumers remain under stress, with further interest rate cuts required in order to prop up demand,” said Katherine Judge, an economist with CIBC Capital Markets.
Slack in the labour
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