On Wednesday morning, Bank of Canada Governor Tiff Macklem told Canadians that they can “breathe a sigh of relief” in the habitual post-interest rate announcement press conference. As Macklem alluded to, interest rates are clearly coming down and we’re firmly in an easing cycle at this point.
The come-down began in June, and since that month, the Bank’s policy rate has dropped from a 23-year high of 5% to 3.75%. At most recent count, October’s rate announcement, put out yesterday, cumulated in a 50-bps-cut, and that brought the policy rate down to 3.75%.
At this point, we’re looking forward optimistically, and further policy rate easing seems all but guaranteed ahead. In particular, economists with the Royal Bank of Canada are forecasting another big cut at the next BoC meeting in December — it’s scheduled for December 11, 2024.
“We continue to expect one more 50-bps rate cut from the BoC this December to bring the overnight rate to the top end of the BoC’s estimate of its neutral range (3.25%) before a return to a more gradual pace of easing in 2025,” writes Economist Claire Fan in a note published yesterday.
“Our base-case macroeconomic forecasts are weaker than the BoC’s. We think real GDP growth is more likely to stay subdued for longer in Canada as interest rates remain restrictive until 2025,” Fan adds.
“We expect GDP growth of 1.3% in 2025, below the BoC’s projection of 2.1% and not meaningfully different from ~1% growth expected for this year,” Fan goes on to say. “We also expect labour markets will continue to soften, with unemployment rate rising to 7% in the coming quarters and for softening activities combined to bring more disinflationary pressures in 2025.”
Fan articulates that RBC economists are anticipating that the policy interest rate will be brought down to 2% by July of 2025. That rate, Fan notes, would be “stimulative and a touch below the lower bound of the BoC’s own estimates of neutral rate at 2.25% – 3.25%.”
There are other forecasts to note from Canada’s ‘Big Banks.’ Just to name one: TD’s James Orlando wrote in a note yesterday that Wednesday’s decision from the central bank “won't be the end of rate cuts.”
“Even with the succession of policy cuts since June, rates are still way too high given the state of the economy,” Orlando says. “To bring rates into better balance, we have another 150 bps in cuts penciled in through 2025. So while the pace of cuts going forward is now highly uncertain, the direction for rates is firmly downwards.”
