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Bank of Canada signals more interest rate cuts: economists

What economists say about the first central bank cut in more than four years

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The Bank of Canada cut its key overnight interest rate to 4.75 per cent on Wednesday and economists believe more relief is on the way. Although the move was widely expected, it is being hailed as a long-awaited change of direction that will have wide-ranging effects on the Canadian economy. Here’s what economists have to say about the first interest rate cuts in more than four years:

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More cuts expected: CIBC

CIBC senior economist Andrew Grantham believes Canadians will see more interest rate relief before long.

“Financial markets had already priced in today’s overnight rate cut, but long-term rates and the Canadian dollar still moved lower on the news, as a perceived dovish tone suggests the likelihood of a greater number of follow-up measures,” he said in a note.

“We continue to forecast a further reduction of 25 (basis points) at the next meeting in July, and a total of four cuts (three more after today’s) by the end of the year.”

‘Good day for Canada’: RSM

“The Bank (of Canada) had all the ingredients for a rate cut: headline and core inflation measures have fallen below three per cent, growth has been stable and unemployment is rising. And they did the sensible thing,” Tu Nguyen, an economist at RSM Canada, said in a news release.

Nguyen also predicts another cut in July and three additional cuts in total before the end of 2024.

“While a single rate cut will not revive the economy overnight, it signals to consumers and businesses the beginning of a gradual and orderly cycle of rate cuts that will unfold over the next year and a half,” he said. . “The recovery can begin now and reach full strength in 2025.”

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No more caution: Economics of capital

“The most surprising thing about the statement is what it didn’t say, which was any reference to taking a cautious or gradual approach to easing policy, but instead simply noted that ‘risks to the inflation outlook remain,'” said Stephen Brown, deputy director of the North. a US economist at Capital Economics said in a note.

Brown added that the statement suggests Canadians could see cuts to the four remaining policy announcements in 2024.

The patio was covered in weeds: TD

James Orlando, director and senior economist at TD Bank, has been calling for rate cuts since early 2024.

“Like that neighbor who let his garden grow too long, the BoC heard the complaints and decided to bring out its policies to cut rates,” he said in a note.

“While the (Bank of Canada) has waited longer than we expected, today begins the process of lower interest rates for Canadians in the future.”

Next month’s data is crucial: BMO

“The key message today is that they are going to take this meeting by meeting, so every CPI report matters, as does every GDP and unemployment rate release, to a lesser extent,” said Douglas Porter, chief economist. . with the Bank of Montreal.

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“There are two CPI (and employment) reports prior to the July 24 decision; If inflation reports mimic the very moderate results seen so far this year, a cut to that decision is also on the table.”

Porter said this decision won’t help the economy much, but it will give a “small boost” to economic sentiment and “improve the mood” in the housing market.

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Help for small businesses: Xero

“Although it is only a small cut in interest rates, this decision should begin to relieve pressure on both household budgets and small businesses,” Louise Southall, an economist at the platform, said in a press release. global small business Xero.

“Hopefully, this will mean Canadians will have a little more willingness to spend at their local businesses.”

Data from Xero Small Business Insights shows that small business sales fell 3.8 per cent year-on-year in the December 2023 quarter and have seen year-on-year declines for the past nine months.

‘Music to the ears of Canadians’: Desjardins

Randall Bartlett, senior director of Canadian economics at Desjardins, said Wednesday’s announcement will be welcomed by Canadians.

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“Today’s interest rate announcement is certainly music to the ears of Canadians,” he said. “The number of rate cuts and how quickly they occur will largely depend on the data continuing to cooperate. Still, rates should gradually decline as ongoing mortgage renewals and a slower pace of population growth weigh on economic activity.”

BoC won’t return to pre-pandemic rates: Central Alberta

While many economists have forecast some rate cuts for the rest of 2024, the question remains how far the central bank could go.

Charles St-Arnaud, chief economist at Central Alberta, doesn’t think Canadians can expect a return to ultra-low rates anytime soon.

“Attention should also focus on what the terminal rate will be in the easing cycle. As we have said repeatedly, the neutral rate is higher than before the pandemic,” she wrote in a note. “This means the scope of rate cuts could be limited, meaning interest rates a year from now will likely be higher than before the pandemic for a long period.”

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