The Bank of Canada maintained its overnight rate at 5 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy has stalled since the middle of 2023 and that growth will likely remain flat until the second quarter of 2024. Slow economic growth has allowed supply to catch up to demand and the Bank now judges that the economy is operating with moderate excess supply. On inflation, the Bank expects inflation to remain close to 3 per cent in the first half of 2024 before gradually falling back to its 2 per cent target in 2025. However, the Bank cautions that while price pressure is falling across a broad number of CPI components, core inflation is not showing a sustained decline. As such, the Bank is still concerned about the risk to the outlook from persistent underlying inflation.
Today's interest rate decision and the tenor of the accompanying statement were not surprising given slightly hotter than expected core inflation in December. However, we expect inflation will resume on its trajectory down to 2 per cent, with some stickiness due to supply side driven shelter costs. Falling inflation, along with weak economic growth and a softening labour market will necessitate rate cuts this year to jumpstart a fledgling economy heading into 2025. We expect the Bank of Canada will lower its overnight rate in June, ultimately lowering to 4 per cent by the end of the year. Financial market expectations for more aggressive rate cuts prompted a steep decline in 5-year bond yields, and therefore 5-year fixed mortgage rates, to start 2024 but yields have since retraced slightly following December's CPI data. We anticipate that 5-year fixed mortgage rates, currently averaging 5.39 per cent, will eventually fall to 5 per cent by the end of the year and will settle near 4.5 per cent by the end of 2025.
Link: https://mailchi.mp/bcrea/bank-of-canada-interest-rate-announcement-jjlqosxjet
For more information, please contact: Gino Pezzani.
Comments:
Post Your Comment: