Economist predicts ‘next move a cut’

The Bank of Canada held its benchmark interest rate at five per cent Wednesday, with one economist predicting the bank’s next move could be a cut based on deteriorating economic data, though policy makers warned they could hike again.

The Bank of Canada in a statement said slowing economic growth and a cooling jobs market were among reasons it decided to keep its benchmark lending rate steady.

Here’s what economists say about the decision.

STEPHEN BROWN, CAPITAL ECONOMICS

“The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and labour market conditions loosening, we continue to think that the bank’s next move will be a rate cut, in early 2024.”

ANDREW GRANTHAM, CIBC ECONOMICS

“Forecasts are uncertain, but economists know what’s already happened, so the softness of recent growth and labour market data made it an easy call for the Bank of Canada to leave rates unchanged. The statement notes that ‘inflationary pressures remain broad based’ as the BOC rejects the idea of stripping out the mortgage interest component in assessing underlying inflation, and wage growth is still running in the four to five per cent range, lifting both costs and spending power.”

CHARLES ST-ARNAUD, ALBERTA CENTRAL

“The key message is that the BOC remains concerned that underlying inflationary pressures remain persistent. As such, the BOC points to solid wage growth and elevated momentum in measures of core inflation. The bank expects that continued slower growth will continue to ease price pressures.

“The BOC does not provide any forward guidance on whether further rate hikes could be necessary or whether it believes it will keep rates on hold for an extended period, suggesting that the BOC will be data-dependent. As such, the bank continues to make it clear that the outlook for the policy rate will depend on inflation.

“Nevertheless, it remains clear that if there were a tugof-war between economic activity and fighting inflation, the BOC would choose the fight against inflation. With this in mind, while we believe that the BOC is likely on the sideline for the rest of the year, further rate increases this year cannot be fully ruled out.”

NATHAN JANZEN, RBC ECONOMICS

“We continue to expect that the recent soft-patch in economic data will continue, and look for the overnight rate to hold where it is through the end of this year.”

JAMES ORLANDO, TD ECONOMICS

“Although the BOC has moved back to the sidelines, it doesn’t mean it will let up on its hawkish rhetoric. It needs to make sure that financial conditions remain tight for the economy to continue to slow. Markets are still in the ‘will they, won’t they’ camp, with pricing for another hike around 50 per cent. Given that the slowdown looks to continue, we think the bar for another hike has been raised.”