The Bank of Canada is gearing up for its next interest rate decision, which will be announced on Jan. 24. Economists are watching closely for any hints about when the central bank plans to start cutting interest rates. However, the general expectation is for the bank to maintain its key interest rate at five percent, the same as it has at its last three interest rate announcements.
Given the slowing economy and a steady decline in inflation, economists are eager to see if the Bank of Canada is ready to shift gears. Dominique Lapointe, a global macro strategist at Manulife, is particularly interested in seeing the central bank acknowledge that rate hikes are done. Although the bank hasn’t ruled out the possibility of raising interest rates again, most forecasters don’t believe another rate hike is likely.
Nathan Janzen, RBC’s assistant chief economist, stated that while the bank might leave the door open to more rate hikes in its upcoming announcement, it is unlikely that they will exercise that option. Amid expectations of potential interest rate cuts by this spring, the Canadian economy has remained stagnant, causing concerns for businesses and consumers. The labor market has shown signs of weakness, with fewer job vacancies and an increased unemployment rate.
The Bank of Canada’s most recent surveys found that labor shortages were no longer a top concern for businesses. Instead, firms were more worried about slowing sales. The consumer expectations survey also indicated that Canadians are cutting back on their spending as higher interest rates require mortgage holders to reduce expenses to afford larger monthly payments. This pullback in consumer spending is expected to further cool the economy this year.
Manulife’s economic outlook for 2024 suggests that the economy will contract in the first half of the year before growing again. However, the expected bounceback in the second half of the year hinges on interest rate cuts. Regardless, the Bank of Canada isn’t expected to discuss rate cuts just yet, especially since inflation rose last month. The annual inflation rate in Canada increased to 3.4 percent in December, posing a challenge for the central bank.
In addition to its interest rate announcement, the Bank of Canada will publish its quarterly monetary policy report on Jan. 24, including new forecasts for the economy and inflation. In October, the bank projected that inflation would fall back to two percent in 2025.