Posthaste: Why CIBC thinks jumbo rate cuts are in the cards for the Bank of Canada
The Bank of Canada likely can’t afford to continue its current pace of interest rate cuts and will have to pick up the pace at some point as soft economic data continues to come in, according to analysts at CIBC Capital Markets.
They are forecasting the Bank of Canada will make two oversized interest rate cuts of 50 basis points — currently “pencilled in” for December and January — on the way to lowering rates to an endpoint of 2.25 per cent in June 2025.
Bank of Canada officials have already cut interest rates by 25 points three times since the beginning of June.
“There isn’t much of a reason why we think the bank needs to move this slowly. The risks to inflation are shrinking and the risks to growth are rising,” Sarah Ying, head of currency strategy at CIBC, said during a webinar on the United States Federal Reserve, Bank of Canada and the Canadian dollar.
“We think there is the possibility for an outsized move. We are less sure on when these 50s (rate cuts) will occur. That will be data-dependent.”
Jumbo-sized interest rate cuts — those larger than the standard 25 basis points — have been a hot topic in market and economic circles after the Fed cut its rate by 50 basis points last week. It was its first cut in more than four years.
Some Bay Street economists said the Fed cut paved the way for the Bank of Canada to make bigger rate reductions than it has been.
But Ying doesn’t think the Fed factors into the Bank of Canada’s rate-cut trajectory.
“It has nothing really to do with following the 50-basis-point cut in the U.S. It’s also because we need to move to normal a lot faster,” she said.
“Normal” refers to interest rates that create the conditions for “stable” inflation and growth.
The Bank of Canada has set a normal
Read more on financialpost.com
