Economists believe conditions are right for a further decrease
The Bank of Canada will announce its latest interest rate decision Wednesday, with high anticipation that there will be a further cut following last month’s decrease.
Governor Tiff Macklem and his team will have considered all the recent data, such as CPI stats, to inform a decision that walks the tightrope between weakening the economy, possibly a step closer to recession, and the risk of fuelling inflation.
“So long as disinflation continues, the Bank of Canada has a narrow path to a soft landing — but that requires them to keep cutting rates,” Dominique Lapointe, an economist with Manulife told BNN Bloomberg.
Meanwhile, BMO director and senior economist Sal Guatieri told CTV News that conditions appear to be conducive for the BoC to ease the pressure on Canadian households and businesses, many of whom are struggling with debt.
"It just seems like all the stars are aligning for rate cuts," Guatieri said. "We know after the last rate reduction six weeks ago, the Bank of Canada basically told us that they are planning a series of rate reductions, albeit they will take it one meeting at a time.”
A survey of economists by the Wall Street Journal revealed that all 14 believe that the BoC will cut rates to 4.5% today (July 24) due to concerns about consumption and a weakening labour market, while a Reuters poll had three quarters of economists expecting a cut.
"It's almost more about why wait, why not go forward with it (rate cut) at this stage," said Dawn Desjardins, chief economist at Deloitte Canada told Reuters.
Erratic Macklem
Scotiabank’s Derek Holt says that the quarter-point rate cut is fully priced in by the markets and the economist, who has not been impressed with Governor Macklem’s decision making, warns there will be consequences if a cut is delayed.
“If the Bank of Canada does not cut on Wednesday, then this would tighten financial conditions and serve as a confidence-sapping admission that they shouldn’t have started to ease in June,” he wrote in a commentary, adding that the announcement and press conference today is unlikely to give away too much of what might happen at the next meeting in September.
“Macklem behaves erratically. His forward guidance is terribly unreliable as we’ve seen throughout his tenure. This is a central bank that wears it as badge of honour when it surprises markets on game day and I swear there is a mischievous element to doing so,” he opined.
The BoC rate decision will be announced before 10am ET and Wealth Professional will keep you updated.
