We know that there will be rate cuts in 2024. We have already experienced our first on June this year.
How much will the rates be? To what extent? We summarize what the Bank of Canada has signalled and some of the predictions from the top Banking Institutions in the market.
We care about this and share this as as you are aware that rates impact the real estate market directly. So a perspective on this will help you plan your coming months when it comes to transactions, market timing and ability to make the most of your investments.
With that said, lets get into it!
Brief Timeline of Bank of Canada Rate Changes & Rates Forecasts
We now know (as of August 2024) that the Bank of Canada’s signals for rate cuts in 2024. Here is the timeline of activities:
1. The Bank of Canada has initiated its rate-cutting cycle, becoming the first G7 nation to do so. On June 5, 2024, the central bank reduced its target for the overnight rate by 25 basis points to 4.75%[5][8].
2. This rate cut is seen as a significant turning point, marking the start of a series of potential cuts throughout 2024 and possibly into 2025[2][7].
3. The Bank of Canada’s rate schedule for 2024 shows two more decision dates after the June cut: July 24 and September 4[4]. These could potentially be opportunities for further rate adjustments.
4. Governor Tiff Macklem has indicated that while they are confident inflation will continue to move towards the 2% target, they remain cautious. The Bank will closely monitor core inflation, the balance between demand and supply, inflation expectations, wage growth, and corporate pricing behavior[5].
5. The timing and pace of future cuts remain data-dependent. Macklem emphasized that they will adjust rates as needed to reach and maintain the 2% inflation target[7].
6. Economists and market observers generally expect more cuts to follow, though the path may not be a straight line down. The Bank is likely to proceed cautiously, balancing the need to combat inflation with supporting economic growth[7].
7. The Bank of Canada’s actions may diverge from those of other central banks, particularly the U.S. Federal Reserve. Macklem stated that there are limits to how far they can diverge from the U.S., but they’re not close to those limits yet[7].
8. The central bank appears to be signaling a gradual approach to rate cuts, with the goal of bringing inflation back to the 2% target while carefully monitoring economic indicators[5][7].
With the above timeline, let’s look at what some of the top economists in the country had to share about the rates earlier in the year.
Avery Shenfeld’s Forecast
CIBC Capital Markets’ managing director and chief economist anticipates a potential rate cut in June, with the possibility of up to 150 basis points of cuts throughout the year (according to Globe and Mail’s article earlier this year).
This forecast is contingent on the need to stimulate economic growth following the current stagnation. Shenfeld’s outlook is based on the Bank of Canada’s recent shift from discussing whether rates are high enough to considering how long they should be maintained at 5%.
Image Source: CIBC
This dovish tilt suggests a readiness to ease monetary policy in response to economic conditions, particularly if the economy requires stimulus to regain momentum after its current lull.
Stephen Brown’s Insights
Capital Economics’ deputy chief North America economist predicts an earlier rate cut, forecasting the first reduction in April.
We all now know that the first-rate cut occurred in 2024 by the Bank of Canada occurred on June 5, 2024. The central bank reduced its target for the overnight rate by 25 basis points to 4.75%.
Brown’s analysis suggests that the Bank of Canada’s economic projections are overly optimistic, and he anticipates inflation will decelerate more rapidly than the central bank expects. As shared in Financial Posts article published last year 3% by the end of 2024: What economists say about Bank of Canada’s latest rate decision, (the business section of the National Posts newspaper in Canada) – his perspective is based on the Bank’s decision to drop its tightening bias, which Brown interprets as the initial step towards interest rate cuts.
His forecast reflects a more aggressive easing stance compared to some other economists, indicating a potentially faster response to economic conditions and inflationary trends.
James Orlando, TD Economics
Orlando echoes the sentiment that the first-rate cut could happen in April or June – as that was also covered in the article by the Globe & Mail in January of 2024.
He points out that the Bank of Canada’s tight policy has led to economic stagnation, which, coupled with market trends, indicates a readiness for rate cuts in the coming months.
Citations & Further Reading:
[1] https://globalnews.ca/news/10542172/bank-of-canada-interest-rate-june-cut-odds/[2] https://www.rbcroyalbank.com/en-ca/my-money-matters/money-academy/economics-101/understanding-interest-rates/bank-of-canada-interest-rate-announcement-what-it-means-for-you/
[3] https://www.cbc.ca/news/business/boc-expects-rate-cuts-split-on-timing-1.7150723
[4] https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
[5] https://www.bankofcanada.ca/2024/06/fad-press-release-2024-06-05/
[6] https://www.bloomberg.com/tosv2.html?url=L25ld3MvYXJ0aWNsZXMvMjAyNC0wNi0wNC9iYW5rLW9mLWNhbmFkYS1wcmVwYXJlcy1mb3ItcmF0ZS1jdXQtcGl2b3QtZGVjaXNpb24tZ3VpZGU%3D&uuid=bf22d45f-22a7-11ef-86d0-917bde2cae20
[7] https://globalnews.ca/news/10546405/bank-of-canada-interest-rate-june-2024/
[8] https://www.reuters.com/markets/rates-bonds/bank-canada-cuts-rates-first-time-four-years-2024-06-05/[9] https://www.morningstar.ca/ca/news/250295/cautious-fed-sees-one-rate-cut-in-2024.aspx
[10] https://www.reuters.com/markets/rates-bonds/bank-canada-cut-rates-july-24-then-twice-more-2024-2024-07-19/
[11] https://www.cbsnews.com/news/interest-rate-cut-decision-federal-reserve-july-september-meeting-2024/
[12] https://www.morganstanley.com/ideas/fed-rate-cuts-2024-outlook
[13] https://apnews.com/article/inflation-economy-federal-reserve-interest-rates-04d2877f47f3913acc2f992d8ef1581b
[14] https://www.cnbc.com/select/when-will-interest-rates-drop/
[16] https://www.bankofcanada.ca/2024/06/fad-press-release-2024-06-05/
