Experts agree Canadian interest rates are heading for a cut!
04 Jul 2019
Most experts anticipate that the next time the Bank of Canada adjusts its policy rate, it’ll make a cut.
So suggests a recent survey of 14 economic researchers, who financial-comparison website finder.com polled ahead of the central bank’s next rate announcement, scheduled for July 10th.
Some 62 percent are in the cut camp, compared to 38 percent banking on a rate increase.
The Bank of Canada has stood on the sidelines since late October, when it hiked the overnight rate — which influences the mortgage market — by 25 basis points to 1.75 percent.
It was the fifth time the bank had pulled up the overnight rate since the summer of 2017, when policymakers began tightening the credit market amid an overheated housing market.
Recovery in Canadian housing markets following a period of adjustment to higher interest rates and stricter lending rules, as well as the country’s recent economic performance are some reasons economists cited to support the call for the Bank of Canada to remain on hold next week.
“The Canadian economy has been performing in line with, if not ahead of, Bank of Canada expectations. Key housing markets are showing signs of recovery, and economic growth appears set to speed up notably in the second quarter,” says TD Senior Economist Brian DePratto.
“The external backdrop remains highly uncertain, which, balanced against domestic strength, suggests the current interest rate setting is about right,” he adds.
Moshe Lander, an economics professor at Montreal’s Concordia University, is among the experts who suggest maintaining the current rate is the right call for next week. “The next move is likely a cut in the overnight rate. It is best to hold onto that option until there are clear signs of a recession,” he explains.
Half of the economic observers surveyed say the stateside Federal Reserve’s rate policy will influence the Bank of Canada to a moderate or greater extent.
“By plotting both rates in a graph, you can easily notice that historically, they move together with some exception,” says Murshed Chowdhury, a University of New Brunswick assistant professor with a PhD in economics.
“Often US rate changes lead to our rate change. Also, we are mutually dependent, therefore, a change in the US rate will definitely influence the Canadian rate in the same direction,” he adds.
RBC Senior Economist Josh Nye suggests a crumbling US or global economic outlook could eventually spur a cut, although there is an argument to keep rates flat beyond the coming week.
“[U]nless we see further, substantial currency appreciation, I don’t think financial conditions will tighten enough for the BoC to need to offset that with rate cuts of their own,” he says.
