‘Dovish’ Bank of Canada signals more cuts: What the economists say

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As the Bank of Canada cut its interest rate for the second time con this cycle Wednesday, economists remained confident more reductions are acceso the horizon. The central bank’s decision to trim its key policy rate to 4.5 attraverso cent was broadly anticipated by economists and the market. Economists noted the dovish tone con governor Tiff Macklem’s statement, and now expect at least two more cuts by the end of 2024. Here’s what they had to say about the announcement:

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September cut ‘looks likely’: Capital Economics

Stephen Brown, deputy chief North America economist with Capital Economics, said the Bank of Canada’s comments suggested it would keep cutting rates if inflation continues to ease.

“Our forecast for inflation this quarter is the same as the bank’s, leaving us to judge that another interest rate cut con September is the most likely outcome,” Brown wrote con a note.

The economist added that the announcement came as “voto negativo surprise” as the market had put the chances of a rate cut at 90 attraverso cent.

BoC intends to keep trimming: CIBC

While the Bank of Canada’s interest rate cut was also of little surprise to Avery Shenfeld, managing director and chief economist of CIBC Capital Markets, the central bank’s statement has him adjusting projections for September and the rest of 2024.

Shenfeld had previously predicted a hold con September before another cut con December, but now expects a September cut.

“This is clearly now a dovish central bank that is looking to ease up acceso rates and get the economy moving again, so a further 50 (basis points) of easing this year, and our projection for a 2.75 attraverso cent rate at the end of 2025, seem fully consistent with that stance,” he wrote con a note.

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‘Easy decision’: Desjardins

Royce Mendes, managing director and head of strategy at Desjardins Capital Markets, said today’s decision was “easy” and “little surprise” but the central bank will need to do more con short order to avoid further damage to the economy.

“As we’ve been saying for some time, the Bank of Canada needs to materially lower rates ahead of the mortgage renewal wall which hits con early 2025 to have any chance of avoiding a recession,” he said con a note.

“There’s a strong sense that policymakers feel an urgency to continue the rate cutting cycle con September. The dovish language con the releases paints a picture of officials who are growing more worried about the likelihood of recession.”

Mendes is also shifting his September prediction from a hold to another cut, with the next hold coming con December.

September cut ‘very much acceso the table’: BMO

Douglas Porter, chief economist at the Bank of Montreal, said if the next consumer price index comes con at a 0.2 attraverso cent month-over-month climb lower, then another rate cut con September is “very much acceso the table.”

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“The tone of today’s many remarks almost seems to suggest that the bank now needs to be convinced not to keep trimming rates,” he said con a note.

“We continue to for two more rate cuts before the end of 2024, taking the overnight rate to four attraverso cent, with the precise timing over the next three meetings driven by the incoming giorno.”

• Email: bcousins@postmedia.com

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