Bank of Canada Interest rates may fall faster than we thought

Article content

The Bank of Canada’s interest rate cut yesterday was widely expected but that didn’t mean there weren’t surprises.

The central bank made its second cut in a row, bringing the benchmark interest rate to 4.5 per cent, but it was the “dovish tone” that struck economists.

“The tone of today’s many remarks almost seems to suggest that the bank now needs to be convinced not to keep trimming rates,” Douglas Porter, chief economist at BMO Capital Markets, said in a note.

Article content

Governor Tiff Macklem said Wednesday that economic growth remains weak relative to population growth, and household spending is soft.

Undershooting the inflation target is just as concerning for the central bank as overshooting it, he said, and acknowledged that the “downside risks” are now taking on more weight in the governing council’s deliberations.

“The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession,” said Randall Bartlett, senior director of economics at Fédération des caisses Desjardins du Québec.

There were cautions, of course. The governor warned progress to bring inflation back to target would be uneven with setbacks along the way and stressed rate decisions would be made “one at a time.”

However, the overall tone of the announcement led many economists to pick up the pace on their forecasts.

“There’s a strong sense that policymakers feel an urgency to continue to the rate cutting cycle in September,” said Bartlett, one of the economists to change his forecast.

CIBC Capital Markets chief economist Avery Shenfeld is now calling for cuts in September and October, rather than in October and December.

Article content

Article content

“The statement highlighted a pickup in economic growth ahead, but note that lower interest rates are cited as a driver of that growth, so there is clearly an intention to continue to trim rates this year and in 2025,” he said in a note.

Most did not change their forecast of two more cuts this year; they just moved them up. But a few went further than that.

Capital Economics thinks the bank will cut 25 basis points at each meeting until the policy rate reaches 2.5 per cent by mid-2025.

Stephen Brown admits there are risks to their forecast, which is partly based on immigration slowing sharply, but “we would still argue that markets are underestimating how fast the bank will get there.”

David Rosenberg, of Rosenberg Research, says the Bank of Canada has some catching up to do and “a steady diet of more rate relief is in our future.”

The central bank’s own projection for the economy of 2.1 per cent growth in 2025 and 2.4 per cent in 2026 implies the rate will have to come down much further, he said.

“The Bank of Canada is hardly done — this is the early stage of what will prove to be more than just a partial unwind of the most severe tightening cycle since the John Crow era of the late 1980s,” said Rosenberg.

Article content

 Sign up here to get Posthaste delivered straight to your inbox.

United States vice-president Kamala Harris hit the ground running after President Joe Biden announced last week he was taking his hat out of the ring.

But whether she wins the Democratic nomination or could beat Republican candidate Donald Trump if she did remains to be seen.

Canadians have had a few weeks to mull over the prospect of Trump winning a second term in the White House, and according to a poll by the Angus Reid Institute, most are dreading it.

As today’s chart shows, 66 per cent of respondents thought a Donald Trump, J.D. Vance combo would be either “terrible” news for Canada, or “bad,” while only 15 per cent thought it would be “excellent” or “good.”

As for which Canadian leader would be best to stand up to Trump in trade negotiations, 32 per cent picked Conservative leader Pierre Poilievre and 20 per cent picked Prime Minister Justin Trudeau.

But truth be told there was little confidence in either of them.

“As many say neither is a good option on this front (32%) as select Poilievre,” said Angus Reid.

Article content

• Paris 2024 Olympic Games, the 33rd Olympiad, begins with the opening ceremony and lighting of the Olympic cauldron
• Today’s Data: United States second-quarter GDP, durable goods orders and personal consumption
• Earnings: Loblaw Cos Ltd., Bombardier Inc., MEG Energy Corp., Eldorado Gold Corp., Baytex Energy Corp., American Airlines Group Inc., Southwest Airlines Co., FirstService Corp.

---

---

Recommended from Editorial

1. 

   Bank of Canada cuts interest rate again and signals more to come

2. 

   How Bank of Canada’s rate cut could affect real estate markets

---

Investing rationally doesn’t make you a “perma-bear,” says David Rosenberg, founder of Rosenberg Research. His strategy to diversify in a market dominated by a handful of tech giants has served him well, racking up double digits gains over the past year. In his latest column, Rosenberg shares his asset mix and two large-cap defensive-growth names that are always worth having a position in. Have a read here.

Article content

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line with your contact info and the gist of your problem and we’ll try to find some experts to help you out, while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers, led by Julie Cazzin, can give it a shot.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content