The current environment is ideal for the central bank to begin scaling back rates, according to economist
The Bank of Canada will be cutting its benchmark policy rate by as much as 150 basis points in 2024, according to Benjamin Tal, deputy chief economist at CIBC Capital Markets.
The ongoing “tug of war” between a slowing economy and sticky inflation rates is providing an ideal environment for the central bank to begin scaling back interest rates, Tal said in an interview with the Financial Post.
“The economy is basically in recessionary territory,” Tal said. “The BoC, in my opinion, is done… We believe that the BoC is already overshooting by 25 or maybe 50 basis points.”
“I think that the economy is now slow enough in Canada and inflation pressures are continuing to decline,” says Dominion Lending Centres Chief Economist Sherry Cooper.
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 5, 2023
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Cuts will be at a languid pace
However, while many observers would say that this means that the central bank is poised to cut rates soon, Tal adopted a more cautious stance.
“I don’t think that is going to happen any time soon,” Tal said, noting that the BoC will be keeping its narrative “very hawkish” to avoid a resurgence in inflation due to rates going down too much.
“I think that they will go slowly,” he said. “I don’t think they will panic and go 50, 75 basis points in one shot.”
HSBC Canada chief economist David Watt provided a similar analysis late last week, saying that rate cuts will take longer than expected due to inflation still being a considerable distance from the central bank’s 2% target.
“We’re not thinking the bank is going to move until the second half of next year, maybe around mid-year, simply because we’re not convinced that the inflation numbers are going to come in low enough,” Watt told BNN Bloomberg.
