Panel of economists also opine on reduction of government bonds holdings
The Bank of Canada will meet on July 24 to make its latest decision on interest rates, following its cut to the overnight rate to 4.75% in May. But should it cut again?
A panel of leading economists convened by the CD Howe Institute believe almost unanimously that a further rate cut to 4.50% this month is called for, with just one of the institute’s Monetary Policy Council (MPC) members believing that the BoC should pause cuts until September.
The majority opinion of the MPC is for a further cut in September to 4.25% with a continued smooth path to 3.25% by July 2025.
The MPC also wants to see the BoC reducing its holdings of Canadian federal government bonds at its current pace through to September, although one member would like this to be accelerated.
This week, CIBC strategists suggested that the Bank of Canada should end quantitative tightening to fix short-term funding issues.
CD Howe Institute’s MPC also discussed the Canadian housing market and how rate cuts might help spark sales. They felt that a 25 basis point reduction would have little effect given that the mortgage qualifying rate has not markedly come down with rate cuts so far.
Inflation was also considered, particularly whether lower interest rates would be an upside risk. While there were concerns regarding geopolitics, especially the US presidential election which could impact globalization and drive up inflation, the panel noted that Canada would be better able to navigate these challenges if interest rates are no longer elevated.
The full report is available on the CD Howe website.
