No change to the BOC prime rate announced today.
For the fifth consecutive meeting the Bank of Canada kept its policy rate unchanged at 5.00%.
You can read the BOC press release here.
RATE FORECAST
We’ve been promising rate cuts for months now.
But where are they?
Every single media outlet and talking head seams to have the answer… “around June”.
However I think expectations of a rate cut in June have to be tempered.
While that timeline is certainly plausible it remains far from certain. At least not as certain as the market expects based on the data we have at the moment.
DATA SUPPORTING A RATE CUT IN JUNE
There certainly are growing signs that the economy is struggling under the weight of high interest rates. Headline inflation in January dropped to 2.90%, the expectation was 3.30%. Very encouraging.
Our most recent GDP reading of 1% in Q4 (which narrowly avoided a recession) hasn’t really inspired a lot of confidence. Economists feedback was the data was underwhelming and that all of the growth came from net exports.
ARGUMENT AGAINST A RATE CUT IN JUNE
There are two reasons why the Bank of Canada may opt to disappoint markets and delay a rate cut until later in the year.
- Firstly, the US economy is not showing many signs of slowing down yet which means that they are further away from rate cuts than we are in Canada. A divergence in rate policy between the US and Canada means that the Canadian dollar will weaken which ultimately has an inflationary effect for us here in Canada.
- Cutting rates on the June timeline threatens to reignite Canada’s housing market. According to Scotia’s chief economist Derek Holt cutting rates too soon “would be about the dumbest thing the Bank of Canada could do“. (Gotta love a great quote like that)
Having said that the expectation remains that we will see lower rates by the end of this year and I agree.
FUTURE RATE EXPECTATIONS “BIG 6”
The following table summarizes the big six banks expectations of Bank of Canada moves and bond market moves in the coming months.
As you can see, one thing they all agree on is lower rates are imminent.
Bottomline from this table we expect interest rates to settle down about 2.00% lower than they are today in the coming months.
The next Bank of Canada meeting
is scheduled for April 10th
As always, the door is open to you. Send me a quick email to say hello and check in anytime. If you would like to get in touch, you can contact me here or book an appointment here.
Until next time…
