The Bank of Canada may be done raising interest rates and will keep them at 5.00% for at least six months, according to a Reuters poll of economists that found a majority expect a cut in the second quarter of 2024 as the economy slows.
Until a few days ago, the prospect of a quarter rate hike on October 25 was still a serious risk, but this week's report showing that inflation fell more than expected in September has reinforced the view that a rate hike for now is no longer needed.
The economy is showing signs of stress from a 475 basis point increase in interest rates since early 2022, which is likely to give policymakers reason to wait and see how much previous interest rate decisions will reduce demand and worsen an already sluggish property market.
At the same time, Canada's labor market remains strong, with strong wage growth in September, which has given BoC Governor Tiff Macklem confidence that while the economy is slowing, it is not headed for a serious recession.
Twenty-nine of 32 economists expect no change to the central bank's overnight rate of 5.00%, while three others expect a 25 basis point increase.
"The Bank of Canada rate decision this week will be a conservative operator," said Randall Bartlett, Senior Director of Canadian Economics at Desjardins.
"It will acknowledge that the economy has slowed faster than expected back in July and inflation in September, particularly core inflation, showed a slowdown that gives us room for optimism."
On the other hand, a two-thirds majority, i.e. 20 out of 30, see the Bank of Canada will cut overnight rates at least once before the end of June 2024. This is a slightly higher ratio than in a survey published this week on rate expectations for the Federal Reserve The United States, which oversees the economy more closely.
The latest results on the Bank of Canada's business outlook showed the weakest since the COVID-19 pandemic, underscoring concerns that the economy may face problems in the coming months.
