Anticipated Decline in Canadian Interest Rates: Predicting Their Eventual Destination

“Shifts in Predictions: Canadian Interest Rate Cuts Delayed Again, Leaving Homebuyers and Mortgage Holders in Limbo”

The anticipation of a Bank of Canada (BoC) rate cut has been a recurring topic in recent months, causing disappointment among those looking to purchase homes or facing mortgage renewals. However, even if rate cuts occur, experts caution against expecting near-zero levels seen during the COVID-19 pandemic.

Moshe Lander, a senior lecturer in economics at Concordia University, emphasized that a return to such low rates is unlikely unless there’s a significant economic crisis. Diana Avigdor, head of trading at Barometer Capital Management, echoed this sentiment, highlighting that even with projected cuts, interest rates would remain higher than levels seen in over a decade.

Forecasts regarding the quantity and timing of rate cuts vary among Canadian economists. While some initially predicted substantial cuts, recent economic data have led to a reevaluation of expectations.

CIBC, for instance, previously anticipated multiple cuts totaling 150 basis points by year’s end, but now forecasts fewer cuts. BMO’s December 2023 outlook has also been adjusted, with chief economist Douglas Porter suggesting a more conservative forecast, citing economic indicators.

Desjardins Group’s prediction of halving rates by the end of 2025 reflects a more cautious approach, factoring in various economic factors, including federal immigration policies.

Despite differing projections, economists generally agree that a benchmark rate of around four percent would align with a stable economy. Lander emphasizes that the BoC’s primary goal is to maintain stable inflation, regardless of the specific interest rate required to achieve it.

While many economists anticipate rate cuts in the coming months, unforeseen events could alter this trajectory. As Lander notes, factors like extreme weather or geopolitical tensions can influence economic conditions, prompting adjustments in the BoC’s strategy.

Ultimately, the path of Canadian interest rates remains uncertain, with economists closely monitoring developments and adjusting forecasts accordingly.