Interest rate cuts likely this year, but don't expect a rapid economic turnaround
Royal Bank of Canada (RBC) CEO Dave McKay said the Bank of Canada is “on track for rate cuts this summer and into the fall.”
While McKay believes this will aid borrowers, he cautions that it won't instantly stimulate the economy.
“But don’t forget, even if rates come down by 100 basis points or 50 basis points, that’s still tightening. A 4% rate in the economy is still not an expansionary rate,” he said in a recent interview aired on BNN Bloomberg Television.
Victor Dodig, chief executive officer of the Canadian Imperial Bank of Commerce (CIBC), offers a slightly more conservative outlook, predicting only one or two rate cuts starting in the latter half of the year.
Since last July, the Bank of Canada's overnight rate has remained at 5%, but speculations abound regarding an impending decrease, with some economists forecasting a shift as early as the June 5 rate decision.
McKay made the comments before Statistics Canada released the March labour force survey, which revealed unexpected weakness in the job market. The unemployment rate climbed 0.3 percentage points to 6.1% after the country slashed 2,200 jobs.
McKay believes Canada’s labour market remains strong and mortgage risks are manageable. Last week, he released a statement regarding the government’s conditions for RBC to maintain and create new Canadian jobs for at least six months after acquiring HSBC.
McKay said the bank had addressed the pandemic over-hiring through layoffs before the acquisition was finalized.
"There will be some displacement of roles but we’re doing our best to take those employees that are impacted over the next six months and find them other roles," he told Reuters.
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