In a recent survey conducted by Bloomberg, economists have projected that the Bank of Canada will maintain its key interest rate at the current level of five percent until the third quarter of 2024.
This consensus among experts indicates that the era of rate hikes, orchestrated by Governor Tiff Macklem and his team, has likely drawn to a close. However, the survey does foresee a solitary rate reduction in the first half of the following year, leaving the policy rate at 3.5 percent by early 2025.
This forecast marks a noteworthy departure from earlier surveys, where economists had anticipated a swifter rate cut by the Bank of Canada. Additionally, long-term bond yields are anticipated to remain elevated, with the 30-year note expected to stay above the three percent mark well into early 2025.
The shifting expectations regarding global interest rates have sent shockwaves through both bond and equity markets. This market volatility followed the United States Federal Reserve’s announcement of an impending rate hike within the current year and a strong likelihood of ongoing elevated borrowing costs throughout 2024 and 2025.
Canada’s economy is perceived to be more susceptible to rising interest rates in comparison to the United States, mainly due to disparities in the structure of their mortgage markets. In Canada, the majority of borrowers are unable to secure fixed interest rates for periods longer than five years. Nevertheless, the Canadian economy tends to ride the coattails of robust growth in the United States, which remains the primary destination for a substantial portion of Canadian exports.
A pivotal reason for the belief that Canada will steer clear of a recession lies in its close economic integration with the United States. Economists are now forecasting a 0.3 percent growth in Canada’s economy for the fourth quarter of the current year, marking an upgrade from the previous survey’s prediction of zero growth. Furthermore, it is anticipated that the economy will gather momentum in 2024.
The Bank of Canada’s decision to cease its interest rate hikes underscores its endeavor to strike a balance between managing inflation and fostering economic growth. While there is an air of optimism surrounding the country’s economic prospects, there remain challenges and uncertainties on the horizon.
In summary, economists’ consensus points toward the Bank of Canada concluding its series of interest rate hikes, with the key rate expected to hold steady until the third quarter of 2024. This shift in monetary policy stance has been influenced by evolving global rate expectations. While Canada’s economy may be more vulnerable to interest rate fluctuations, its symbiotic relationship with the United States and the anticipation of economic growth offer reasons for measured optimism.
The Bank of Canada’s approach will be closely observed in the coming months as it navigates the delicate path between inflation control and economic support.