The Bank of Canada is anticipated to persist in lowering interest rates over the upcoming months. Analysts forecast a series of reductions, with the primary overnight rate possibly dipping to 3.5% by January 2025. The central bank’s choice to decrease rates is influenced by a more optimistic inflation forecast and a weakening economy.
In June, the Consumer Price Index experienced a rise of 2.7% on an annual basis, nearing the bank’s target of 2%. However, the employment sector is displaying signs of decline. The unemployment rate hit 6.4% in July, an increase from 5.8% in December 2023.
This situation is predominantly attributed to a surge in immigration, which has created additional slack in the job market.
Outlook for Bank of Canada Interest Rates
Canadian consumers react more sensitively to changes in interest rates compared to their American counterparts.
Many hold variable-rate or short-term fixed-rate mortgages, which means they quickly feel the effects of interest adjustments. Increasing housing expenses, particularly in urban areas, are also pressuring Canadians. Nonetheless, the Bank of Canada recognizes the necessity to bolster economic growth by easing monetary policy.
Experts like Doug Porter from BMO predict rate reductions at each of the three remaining policy meetings in 2024. Michael Greenberg from Franklin Templeton believes there may be four or five additional cuts within the next year. The pace and scope of these reductions will be contingent on the developments of inflation, the job market, and consumer expenditure in the ensuing months.
The Bank of Canada will be vigilantly observing these indicators as it makes its decisions regarding rates.
