Bank of Canada to cut interest rates in half by end of next year
Canadians can expect the Bank of Canada to start providing some respite this spring as the central bank “slowly but surely” moves towards its first interest rate cuts, says Desjardins Group.
Chief economist Jimmy Jean says Desjardins is forecasting the first rate cut in June, but it could “easily” arrive as soon as April if inflation and the economy slow more than expected.
“We are seeing the damage caused by that very aggressive monetary policy,” Jean said in an interview with the Financial Post’s Larysa Harapyn. “It’s time to cut rates.”
After the first cut, Desjardins expects the central bank will reduce rates by 25 basis points at every meeting this year and into 2025. By the end of next year, it predicts interest rates will be roughly half of what they are now.
That reduction would put the Bank of Canada’s key overnight rate — currently at five per cent — at 2.5 per cent by the end of 2025, according to Desjardins’ forecast.
The Bank of Canada doesn’t have the same margin of error as the United States Federal Reserve to keep rates higher for longer because “our economy is much more sensitive to interest rates,” said Jean.
The U.S. economy had “a spectacular (year) by all stretches of imagination” in 2023, he said. “All the numbers have defied expectations. Even the Fed has been surprised by the strength.”
Canada’s economy, on the other hand, has already fallen into recession when viewed on a per-capita basis, said Jean.
The economist expects wages will start to come down this year, providing the “Bank of Canada with further confidence that it’s time to cut rates.”
Foto de Alex Shutin en Unsplash
Original Author: Noella Ovid
Publication Date: February 24, 2024
Last Update: February 26, 2024