Rate decision day: economists certain of what will happen, almost

The Bank of Canada will announce its latest interest rate decision Wednesday, as it digests data that shows some slowing of a stubbornly resilient economy.

But what do some of the country’s leading economists think Governor Tiff Macklem and his team will decide to do?

"There are enough signs that growth is slowing, and labour market slack is increasing, [and this] suggests that current interest rates are high enough to bring inflation down, over time," explains Avery Shenfeld, managing director and chief economist for CIBC Capital Markets.

Shenfeld’s view is widely held according to a panel of economists convened by Finder with all but one expecting a hold from the central bank. Two thirds of the panel agree with maintaining the current rate of 5%, but 20% would like to see the bank hike by another 25 basis points at Wednesday’s meeting. Most of the panel correctly predicted a hike would be announced at the July meeting.

Other experts have also been erring on the side of a pause for rates including senior economists at RBC, Scotiabank, and Desjardins.

Looking ahead, 80% of the experts believe the cost of living will continue higher in the coming months and 60% expect household debt to rise in the near term.

With this in mind, a pause would seem prudent.

"The Bank has moved aggressively in the last 20 months to increase interest rates from record lows to 20-year highs," said Moshe Lander, senior lecturer in Economics at Concordia University. "They need to give the economy a chance to absorb fully their actions and a six-week pause will not make a major difference in its fight against inflation."

Right direction

While the bank may have done enough to cool the economy for now, holding back in January – when it was the first G7 central bank to do so – saw markets anticipate rate cuts and a rebound for the housing market.

“I’m sure they’re still conflicted,” Dawn Desjardins, chief economist with Deloitte Canada told Bloomberg. “I don’t think they want to be talking too aggressively like this is a fait accompli. They’re going to want to keep the idea that things look like they’re moving in the right direction.”