Much expectation is on Bank of Canada to cut key interest rate Wednesday to 4.25 percent
The Bank of Canada is poised to cut its key overnight lending rate for a third consecutive time in its meeting on Wednesday.
Economists widely expect the Bank to announce a quarter-percentage-point cut to 4.25 per cent, according to a Bloomberg survey, following cuts of the same size in June and July.
In the most recent announcement, Bank of Canada governor Tiff Macklem said central bankers needed to see housing inflation and other price pressures ease to continue lowering rates.
The Bank of Canada is poised to cut its key overnight lending rate for a third consecutive time in its meeting on Wednesday.
Economists widely expect the Bank to announce a quarter-percentage-point cut to 4.25 per cent, according to a Bloomberg survey, following cuts of the same size in June and July.
In the most recent announcement, Bank of Canada governor Tiff Macklem said central bankers needed to see housing inflation and other price pressures ease to continue lowering rates.
Overall inflation fell to 2.5 per cent in July, while shelter inflation rose at a slower pace compared with June, supporting the case for another reduction this week.
Meanwhile, the labour market continued to weaken in recent months, and despite the economy growing in the second quarter, real gross domestic product fell on a per-person basis.
“Clearly the economy is struggling,” wrote BMO economist Benjamin Reitzes in a note to clients on Tuesday. “With that backdrop, there’s no reason for policy rates to remain above neutral, which looks to keep the BoC on a rate cutting path well into 2025.”
On Friday, Statistics Canada will release August employment numbers. Reitzes forecasts the jobless rate to tick slightly higher to 6.5 per cent from 6.4 per cent in July, but said that a bigger increase in unemployment could lead to “more aggressive” interest rate cuts in 2024.
While mortgage holders might be hoping for an even larger cut on Wednesday, some economists argue that the central bank should not make a bigger move.
Derek Holt, economist at Scotiabank, says that a larger cut could fuel consumer spending by more than desired, or risk sending the wrong message to Canadians that the Bank is concerned about the current state of the economy.
“In my opinion, the BoC is not out of the woods when it comes to inflation risk and should proceed very carefully without overreacting to a handful of months of data,” he wrote in an analysis on Friday.
The Bank of Canada is set to announce its decision at 9:45 a.m. on Wednesday, followed by a press conference. After that, it has two more meetings scheduled until the end of the year in October and December.
Economists are forecasting each of those meetings to deliver quarter-percentage-point cuts, bringing the overall key rate to 3.75 per cent by year-end, according to the Bloomberg survey.
This article was first reported by The Star
