The Bank of Canada has decided to maintain its quantitative tightening - keeping the overnight rate at 5% for the fourth consecutive month. While the Bank remains on the cautious side as we start off the new year, economists are predicting rate cuts in mid-2024 based on the Bank’s outlook.
Economic growth stalled mid-2023, allowing supply to fall into pace with demand which contributed to the ease of inflation. The Bank expects weak growth in the first half of 2024 before progressing in the remaining half of this year. According to the Bank’s press release statement, its focus is seeing “further and sustained easing in core inflation” and “the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour”.
Although interest rates have kept a tight leash on spending and the rise in inflation, underlying pressures remain. December’s inflation report wrapped up 2023 with a reading of 3.4% - up three basis points from the previous month. This was expected due to the base-year effects on gasoline prices which did not drop as quickly compared to a year ago. The trim and median core rates increased at a faster rate than expected by economists. The Bank of Canada monitors these key yearly inflation measures which exclude unstable price fluctuations.
Chief economist Dr. Sherry Cooper predicts that rate cuts will likely happen around June at the latest. Dr. Cooper adds that “once they begin to take rates down, they will do so gradually, 25 basis points at a time, and over a series of meetings. We could well see rates fall by 100-to-150 bps this year. Risks to the outlook remain, as always.” The next scheduled interest rate announcement is on March 6th. Stay tuned for more updates!
Comments