Rate Hikes/Rate Cuts-
Bank of Canada Holds Benchmark Rate at 5.0%
Will there be rate cuts in 2024? In the opening decision of 2024, the Bank of Canada maintained its benchmark interest rate at 5.0%. Benjamin Tal, a Deputy Chief Economist, notes the absence of references to potential future rate hikes as a significant development.
Will There be Rate Hikes in 2024?
Tal observes that the removal of the statement indicating the intention to raise interest rates signals a clear departure from previous stances. Despite concerns about service inflation, Tal suggests that the bank is likely finished with rate hikes. Although Tal still remains cautious about market speculation regarding rate cuts.
Inflation Outlook and Tolerance
While the Bank reiterates concerns about inflation risks, it expects inflation to remain around 3% in the first half of 2024. And gradually returning to 2% by 2025. Tal highlights the Bank’s comfort with the current inflation outlook and its willingness to tolerate higher inflation, understanding that the trajectory is downward.
The timeline for rate cuts
Addressing speculation about the timing of rate cuts in 2024, Tal suggests that the Bank of Canada is unlikely to make a move in April. He emphasizes a potential tug of war between a slowing economy and elevated inflation. He indicates that June or July is a more reasonable expectation for the commencement of a rate-trimming cycle.
Housing Market Dynamics
Tal explains that the Bank’s cautious approach is influenced by the housing market’s performance. Despite a surprising uptick in December, the market remained sluggish throughout 2023. Tal believes the Bank aims for a modest recovery. Avoiding premature rate cuts that could spark excessive optimism and a renewed surge in housing market activity.
A Cautious Path Forward
As the Bank of Canada steers away from a timeline for rate cuts, the focus remains on striking a balance between economic indicators and inflation concerns. Benjamin Tal’s insights suggest a deliberate approach. With the Bank likely to adopt a more accommodative stance over time, paving the way for potential rate cuts in the latter part of 2024.
Questions? Contact one of our Expert Mortgage Advisors
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Original Article – Canadian Mortgage Professional – January 25, 2024
