Bank of Canada to cut rates on July 24, then twice more in 2024: Reuters
Poll
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[July 20, 2024] By
Mumal Rathore
BENGALURU (Reuters) - The Bank of Canada will cut its overnight interest
rate on Wednesday by 25 basis points to 4.50% amid expectations that
inflation will continue to fall, according to a large majority of
economists polled by Reuters.
With the economy slowing and unemployment edging higher, the central
bank is then expected to cut rates twice more in 2024, although only a
slim majority of economists are forecasting a policy rate of 4.00% by
the end of this year, with risks tilted toward fewer rate cuts rather
than more.
While forecasters have consistently predicted at least three Bank of
Canada rate cuts in 2024 since early this year, the chance of a fourth
reduction in borrowing costs now rests on a knife's edge, in part
because the U.S. Federal Reserve has yet to begin reducing rates.
Although Canadian inflation has eased further to within the BoC's 1%-3%
target range amid a weakening of the job market and softening corporate
outlook, sticky core inflation and wage growth could warrant caution.
However, nearly three-quarters of the economists surveyed in the July
16-19 poll, or 22 of 30, expect the BoC will cut its policy rate again
to 4.50% on July 24. That is in line with interest rate futures pricing
The Canadian central bank trimmed borrowing costs last month, marking
its first rate cut in four years.
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The BoC is expected to pause its easing cycle at its September meeting
before resuming the rate cuts in October and December. That would
suggest the BoC will cut rates twice before the Fed begins its easing
cycle, now widely expected to happen in September.
Andrew Kelvin, head of Canadian and global rates strategy at TD
Securities, said second-quarter CPI inflation "is tracking below what
the Bank (of Canada) had forecast in April and the business outlook
survey was extremely dovish ... the pieces are in place for the BoC to
cut rates again at its meeting next week."
UPSIDE INFLATION RISKS
Although inflation, as measured by the annual change in the consumer
price index, was forecast to ease further in coming quarters, staying
around 2% through this year and 2025, risks are skewed towards higher
price pressures, economists said.
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General view of the Bank of Canada building on Parliament Hill in
Ottawa, Ontario, Canada September 17, 2020. REUTERS/Blair Gable/File
Photo
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"Additional rate cuts beyond the one we see in July will require
inflation decelerating from what we've seen in the last few months.
We do expect it will happen," Kelvin said.
After July, the BoC will cut its policy rate twice more this year,
to 4.00% by the end of 2024, according to a slight majority of
economists in the poll - 16 of 30. While 10 of them expected the
rate to be at 4.25% or higher, only four predicted it would reach
3.75%.
All five big Canadian banks expect a total of four rate reductions
this year.
The Canadian central bank may gain more confidence if the once
red-hot housing market remains relatively calm.
Average home prices have been declining as existing and aspiring
homeowners deal with sharply higher mortgage payments compared with
rock-bottom rates during the COVID-19 pandemic.
"The BoC has been clear that it intends to ease policy only
gradually and we think it will remain more concerned with upside
risks to inflation than downside ones in the near term," said Tony
Stillo, director of Canada economics at Oxford Economics.
"If inflation fails to slow, as we expect ... or house prices
rebound too quickly the BoC may delay further easing and hold the
policy rate higher for longer."
Nearly 70% of economists in the poll, 11 of 16, said the end-2024
overnight rate was more likely to be higher than they expect rather
than lower. Five said the opposite.
Canada's economic growth was expected to average 1.0% this year
before bouncing back to 1.8% in 2025.
(Reporting by Mumal Rathore; Polling by Shaloo Shrivastava; Editing
by Ross Finley and Paul Simao)
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