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  • Writer's pictureJose Gustavo Salcedo

Bank of Canada Holds Rates, but Debate on Future Hikes Continues

The Bank of Canada has opted to keep interest rates steady in light of weaker-than-expected GDP data, according to Steve Huebl’s report for Jose Gustavo Salcedo’s Mortgage Agent News Blog. The second-quarter economic growth contracted by 0.2%, a far cry from the Bank of Canada’s earlier 1.5% forecast. This slowdown, coupled with rising unemployment and easing inflation, has led most experts to expect a rate hold.

However, opinions differ on whether this marks the end of the current rate-hike cycle. BMO’s chief economist, Douglas Porter, believes that the recent economic softening will likely put rate hikes on hold for now. On the other hand, Derek Holt from Scotiabank is less sure, suggesting that Governor Tiff Macklem may still consider further hikes necessary to reach inflation goals, even if it means taking some risks.

National Bank warns that while some near-term inflationary pressures are expected, a prolonged rise above 3% could pose problems and necessitate further tightening. Desjardins anticipates that July’s hike may be the last in the current cycle due to economic weakness. TD Economics concurs, believing that below-trend economic growth is on the horizon for Canada.

The latest rate forecasts from major Canadian banks are as follows:

  1. BMO: 5.00% (Year-end ’23), 4.25% (Year-end ’24)

  2. CIBC: 5.25% (Year-end ’23), 3.50% (Year-end ’24)

  3. National Bank: 5.00% (Year-end ’23), 4.00% (Year-end ’24)

  4. RBC: 5.00% (Year-end ’23), 4.00% (Year-end ’24)

  5. Scotia: 5.00% (Year-end ’23), 3.75% (Year-end ’24)

  6. TD: 5.00% (Year-end ’23), 3.50% (Year-end ’24)

The general consensus among these banks is that rates will hold steady or see only modest increases in the near future.

In conclusion, the Bank of Canada’s decision to hold rates may provide a temporary reprieve, but the debate over the trajectory of future hikes remains lively among economists. Experts advise keeping an eye on inflation and economic growth trends in the coming months for a clearer picture of what lies ahead.

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