In April, the Bank of Canada started a series of aggressive increases of its overnight rate, taking it from a historic low of .25% to 3.25%..There are two more rate announcements this year, on Wednesday and Dec. 7..Finder.com organized a panel of 17 Canadian economists, and asked for their thoughts on the bank’s next two moves..There was consensus on the Oct. 26 decision, with 100% of panelists agreeing the bank will increase its rate..Opinions on the size of the increase varied, with 76% predicting an increase of .5%, with the remainder, 24% expecting a more aggressive bump of .75%..Some panelists believe the bank could, and should, slow its overnight rate increases, citing the slowdown in the economy, a pending recession and rising unemployment as key reasons.. "As rates move up, the bank should slow the pace of increases to allow the economy to show its response to earlier hikes and thereby reduce the risk of going too far," says Avery Shenfeld, chief economist for CIBC, who believes the next rate announcement will be 50 basis points. .Chief economist for Dominion Lending Centres, Sherry Cooper, believes the bank would be wise to make an aggressive increase of .75%.."Due to persistent higher costs, due to inflation, the sooner rates rise to at least 4.5%, the better,” says Cooper..Not all panelists think the bank should continue its increases..Tony Stillo, director of Canada economics at Oxford Economics, is one of three panelists who thinks the bank should hold steady in October in order to assess the impact of recent rate hikes.."Historically, high household debt and overvalued housing in Canada make the economy acutely vulnerable to a sharp run-up in interest rates,” says Stillo, adding Canada’s economy is now acutely at risk given the bank’s recent aggression. .“We expect a moderate recession starting in Q4 2022, largely due to aggressive rate tightening by the Bank of Canada, higher inflation for longer and weaker external demand from looming recessions in the US and other advanced economies,” he says. .The lone voice calling for a cut is economist Will Dunning, an independent housing analyst and CEO of Will Dunning Inc, calling for the bank to cut the overnight rate by .5%..“Interest rates are already at a level that will very likely result in substantial job losses during the first half of 2023,” says Dunning. “Forward-looking policy setting should be concerned about that.".Canadians are dealing with higher living costs with the most pressing question being ‘when will the cycle of rate hikes stop?’.Panelists were asked to look further down the road in the bank’s battle with inflation..A minority, 18%, believe the bank will continue its rate hike policy into the new year at the January 2023 meeting. A smaller minority, 6%, says a rate hike in the new year, if there is one, will not happen until March..A few experts believe the bank should adopt a softer approach to easing the heavy-handed hikes aimed at slowing rapid price escalation..“The bank should signal a gradual end to rate hikes, and a 50 and 25-basis-point increase for the next two meetings would align with this,” says chief economist for Central 1, Bryan Yu..Expectations are the pressure on housing markets will continue..All economists on the Finder panel agreed the real estate downturn will continue for the remainder of 2022 and into Q1 2023. As a result, most economists are predicting home prices will decline as Canadians move into the winter months. .Of the panel, 33% believe housing price declines would be between 7.5% and 9.99% before the end of 2022. Another 25% believe prices would drop between 2.5% and 4.99% before the end of the year.."Higher interest rates have clearly impacted the demand side of the market and are starting to show on the supply-side,” says Moshe Lander, professor at Concordia University, who predicts price declines before the end of 2022 to fall between 5% and 7.49%. .“The rapid increase in interest rates raised the mortgage payment necessary to buy a home. Rising interest rates also increased how much interest now had to be paid on existing mortgages. This pressure will prompt the most leveraged to sell their homes.”.Carl Gomez, chief economist for CoStar Canada, agrees, but forecasts a smaller price decline of less than 2.59%, by year-end. ."Big price increases at the beginning of the year will leave the year-over-year changes barely positive despite the monthly declines seen over the second half of the year," says Gomez.
