Economists forecast cuts at each meeting for the rest of the year and into 2025
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The Bank of Canada is expected to cut its policy interest rate by 25 basis points on Wednesday and there are few indications it will stop, economists said.
This week’s quarter-point cut would be the third in a row and reduce the overnight rate to 4.25 percent. Wednesday’s decision came as the central bank signaled a more dovish tone in recent months, with economists predicting cuts at every meeting for the rest of the year and into 2025.
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“I don’t think they’re going to signal the end of the road; I think they’re going to remain open to continuing to do more,” said Beata Caranci, chief economist at Toronto-Dominion Bank. “But in a public bank, I hope to continue to show that it depends on the data and see how the data evolves.”
The consumer price index hit 2.5 percent in July, the slowest pace in nearly three years. The Bank of Canada has forecast inflation will return to the two percent target by the end of next year.
“The last CPI print, when we just looked at the number of components, almost 50 percent grew by less than one percent, so it’s quite significant,” said Jimmy Jean, chief economist at The Desjardins Group. “The story about inflation and why it’s still two and a half percent is mostly about housing and especially about rent.”
Jean said that no tightening of monetary policy could have an impact at home, because of supply and demand issues.
After the central bank’s policy rate announcement in July, Bank of Canada Governor Tiff Macklem said the central bank’s “risk balance is shifting,” meaning that as inflation returns to target, the bank is paying more attention to inflation and inflation risks. economy.
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“He’s in a world of risk both ways again and six months ago it didn’t happen,” Caranci said. “Six months ago, the concern was more one-sided, that inflation would remain sticky and high.”
Economic growth in Canada was stronger than expected in the second quarter, growing at an annual rate of 2.1 percent, above the Bank of Canada’s forecast of 1.5 percent. However, momentum heading into the third quarter appears to have slowed, according to preliminary estimates by Statistics Canada, with average GDP growth in June and July.
The labor market is also a concern: the unemployment rate rose to 6.4 percent in June and held steady in July. Statistics Canada reported job openings fell 25.6 percent in June compared to a year earlier. Payroll jobs also declined by 47,300 in June, compared to May.
If jobs and the economy continue to deteriorate, Jean said steeper rate cuts may be a possibility.
“Disappointing signals on the labor market front keep coming and they’re pretty persistent,” Jean said. “A super size cut in October is not far from my opinion in Canada.”
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National Bank of Canada economists Taylor Schleich and Warren Lovely also did not rule out the potential for a 50-basis-point cut this fall.
“To be sure, our base case outlook does not include a 50-basis-point movement this year and the Bank of Canada may prefer to increase the ‘normal’ increase, but the risk of the labor market leading to a larger cut in the fall is more likely than a pause,” he wrote in a note to the client.
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The economy beat Bank of Canada forecasts with 2.1% growth.
As the bank’s easing cycle continues, forecasters expect the policy rate to fall to between 2.25 percent and 3.25 percent by the end of next year.
• Email: jgowling@postmedia.com
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