BoC will be very cautious before starting rate cuts in 2024: economist
Experts say interest rate hikes may be over as the Bank of Canada holds its trendsetting rate at five per cent, but caution that it may be some time yet before the central bank starts to cut rates.
On Wednesday, the Bank of Canada held its overnight rate at five per cent for the third consecutive meeting, in a move that fell in line with economists’ expectations.
The bank said it no longer sees “excess demand” in the economy, but is prepared to raise rates if necessary.
Earl Davis, head of fixed income and money markets at BMO Global Asset Management, said he expects rates to remain at five per cent until the fall of 2024.
“We do expect cuts, but we don’t expect them until Q3 (next) year,” he told BNN Bloomberg in a television interview, noting that his prediction for rate cuts falls later than the market’s expectations.
Allison Boxer, economist with PIMCO, said she expects the Bank of Canada to take some time to assess the economy before considering cuts.
“I think for now, the Bank of Canada just needs to remain on hold and wait for more data before they can start to ease,” she said.
David-Alexandre Brassard, CPA Canada’s chief economist, said he was surprised the bank left open the possibility for further hikes.
“There are little to no signs that the Canadian economy requires any more rate hikes,” he said in a news release.
“If anything, most economists now have rate cuts in their sights.”
Brassard said the central bank was “on point” in its Wednesday assessment that housing costs are driving inflation. But said he noted that there was “no mention or considerations around the counterproductive impacts of interest rates on this component of inflation.”
Simon Harvey, head of FX analysis at Monex Europe and Canada, said he believes rate cuts could come in short order.
“We expect the Bank will need to officially open the debate to policy easing in January, before cutting rates in April,” he said.
“However, with slack rebuilding in the labour market at an aggressive pace and this likely to flow through to weaker measures of wage growth, there is a material risk that the Canadian economy will enter 2024 in an outright recession.”
Clay Jarvis, a mortgage and real estate expert with NerdWallet, said Canadians should be careful when considering when rates may come down.
"No changes to the Bank of Canada’s overnight rate mean no immediate relief for variable-rate mortgage holders, possibly indicating the end of the Bank’s series of rate hikes,” he wrote in a news release.
"Home buyers expecting variable rates to fall in spring may be right, but should exercise caution and consider fixed-rates, which are currently significantly lower and may remain so throughout 2024, especially if inflation intensifies."