Don’t be surprised if the Bank of Canada cuts rates come September. Economists say the likelihood of this has increased thanks to the slowdown in the Canadian economy and the growth of trade tensions.
The odds of a cut by the central bank’s next decision on Sept. 4 is only 20 per cent. However, Macquarie Capital Markets believes the chances are much higher at more than 50 per cent, the Financial Post reports. They predict another cut will follow in October.
Similarly, Scotiabank predicts that there will be at least one rate cut this year. In their latest forecast update on Friday, they noted a cut could come as early as Sept. 4 and as late as Oct. 30. Another cut is predicted to come in the first quarter of 2020.
“We now assume the US-China trade war will persist for the remainder of the Trump Presidency. This represents a substantial increase in risk relative to our previous assessments, as can be seen in the market reaction over the last two weeks,” the forecast noted.
“We now believe the Bank of Canada will follow [other central banks] that cut rates to insure against potential damage.”
But despite the speculation, not everyone is convinced rates will fall. Inflation remained steady last month at two per cent, according to Statistics Canada, keeping price pressure at BoC’s target and giving them less of a need to lower rates.
“The economy still looks to be humming along,” Shaun Osborne, Scotiabank’s chief foreign exchange strategist, told Bloomberg. “[It] makes the September rate cut call from the Bank of Canada very marginal at best, outside of some significant external event.”
The Bank of Canada’s interest rates have gone unchanged since October 2018. At that time, they rose to 1.75 per cent, which is an increase of 0.25 per cent. The rates have held steady since.