Economists share interest rate predictions

Robb NelsonMortgage Talk Canada

by Neil Sharma

While there’s near consensus among economists that the Bank of Canada will hold the interest rate at 1.75% on Wednesday, quite a few of them also believe a rate cut is just around the corner.

“If we were only looking at domestic factors, we might think that the Bank would soon start to consider further rate hikes,” said Capital Economics’ Stephen Brown. “Economic growth is on track to outperform the Bank’s forecasts in the second quarter and core inflation has risen in recent months. But outside of Canada, trade tensions have grown, there are signs that U.S. GDP growth is slowing, and the Fed has signalled that it will soon cut rates. We suspect that the next move will be a cut.”

The housing market continues showing signs of recovery and, because it plays a crucial role in the Canadian economy, there are few reasons to worry about the domestic picture. However, trade tensions between the United States and China are proving to be a spanner in the works.

“The Canadian economy has been performing in line with, if not ahead of, Bank of Canada expectations,” said TD Economics’ Brian DePratto. “Key housing markets are showing signs of recovery, and economic growth appears set to speed up notably in the second quarter. The external backdrop remains highly uncertain, which, balanced against domestic strength, suggests the current interest rate setting is about right.”

The Canadian economy is buoyant and growing, albeit slowly, and inflation remains within the Bank of Canada’s target range. For these reasons, Moshe Lander, an economics lecturer at Concordia University, doesn’t believe an interest rate cut is imminent.

“A rate increase is unnecessary without sustained upward price pressure,” he said. “There is little room for a rate decrease since the overnight rate is already so low, so it’s best to wait until there is economic data that warrants a cut.”

There has been more job creation in Canada through the first four months of the year than in all of last year combined, according to Scotiabank’s Brett House, who also forecasts faster growth in the quarters ahead because conditions in Canada are distinct from those facing the United States and its Federal Reserve.

“Canada’s major macroeconomic activity indicators continue to rebound from a soft patch at the turn of the year and inflation is near the Bank of Canada’s target,” he said.

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