Questioning what the Bank of Canada has planned for its overnight rate in 2023 raises other questions about what affect the bank’s actions will have..Finder.com assembled a panel of 17 of Canada’s top economists to get some answers..When will the Bank of Canada pivot? .After the bank’s decision on Jan. 25, Finder’s panel says ‘be cautious’, as interest rates may remain elevated in the bank’s battle against inflation. .A majority of the panel, 72%, don’t expect another rate increase in March, with none calling for a hike in April, while 12% expect one in June.."We anticipate a pause through 2023 as higher rates curb economic performance and inflation," says Bryan Yu, chief economist lecturer at Central 1 Credit Union..Is a recession looming? .Recession talk began with the bank’s first rate hike in March 2022 and speculation Canada is ripe for an economic downturn hasn’t lessened in early 2023..A majority of the panel, 78%, are anticipating a recession. One-third say the country is already in a recession, or on the verge of one in Q1 2023, with 6% expecting a recession at the end of the year in Q4 2023. .The most popular response, from 39% of Finder’s panellists, is that a recession will come at some point in the near future but they don’t know exactly when. .“We believe Canada is already in the early stages of a recession led by a deepening correction in housing and a pullback by consumers, particularly highly indebted households,” says Tony Stillo, director of Canada Economics at Oxford Economics..“The downturn will create slack in the economy and help lower inflation back to the Bank's 2% target. After averaging 6.8% in 2022, we expect inflation will fall to 3.8% in 2023 and further to 2.3% in 2024.” .Will unemployment impact rate hikes?.The unemployment rate dropped slightly to 5.3% in December 2022, .8% lower than in December 2021, and well below the pre-pandemic rate..When asked about the unemployment rate’s impact on economic policy 56% expected the BoC to keep raising rates, regardless of the impact..Atif Kubursi, professor emeritus at McMaster University and Econometric Research said, "The bank is now focusing on inflation busting and will pay no real attention to an expected rise in unemployment.".Douglas Porter, chief economist for BMO Financial Group agrees, "inflation is simply far too high, and even a modest back-up in unemployment would leave it below medium-term norms.".“The Bank's focus is on inflation. While I'm sure it hopes for a soft landing, it will not be dissuaded by a rise in unemployment, unless it sees inflation returning to target,” said Angelo Melino, an economics professor at the University of Toronto..Not all experts are convinced the bank should continue rate hikes as unemployment rates rise. .Sebastien Lavoie, chief economist at Laurentian Bank cautions, “there are limits in the job market resiliency. Cracks are emerging in terms of hiring and voluntary quitting. From a communication standpoint, it would be very difficult for the bank to hike rates as unemployment continues to climb.”.What’s the impact on housing?.The average price of a Canadian home sold in December was $626,318,a year-over-year decline of more than 12%, according to the Canadian Real Estates Association (CREA). .When asked what prices will look like in 2023, every member of Finder’s panel believes Canada’s real estate market will remain in a macro downtrend for the entirety of 2023. .Finder’s panel believes:.100% anticipate prices will only decline further by the end of 2023. .77% believe prices will drop, on average, between 10% and 20% by end of the year (from Nov 2022 prices)..45% believe decreases in building permits for new homes puts upward pressure on prices, countering downward pressure from rising interest rates..Asked if there is anything specific the bank should do to improve housing affordability, the most effective action they can take hinges almost entirely on interest rates, according to the panel..Derek Holt from Scotiabank says, “the Bank can stay the course through tightened monetary policy to dampen inflation by reigning in interest-sensitive sectors like housing. If it eases up too quickly, then house prices may rip higher again and damage affordability once more.”.“The Bank of Canada's rapid interest rate hikes have been a key catalyst for the correction in home prices and the recession also now underway,” says Stillo of Canada Economics. “Housing affordability is expected to improve as interest rates begin to ease and the house price correction continues.”.Moshe Lander, a senior economics lecturer at Concordia University believes, “the solution to Canada's "unaffordable" housing situation is looser zoning laws and that is a municipal issue not a provincial or federal issue, and certainly not a bank issue.”.See the entire report https://www.finder.com/ca/bank-of-canada-interest-rate-forecast
Questioning what the Bank of Canada has planned for its overnight rate in 2023 raises other questions about what affect the bank’s actions will have..Finder.com assembled a panel of 17 of Canada’s top economists to get some answers..When will the Bank of Canada pivot? .After the bank’s decision on Jan. 25, Finder’s panel says ‘be cautious’, as interest rates may remain elevated in the bank’s battle against inflation. .A majority of the panel, 72%, don’t expect another rate increase in March, with none calling for a hike in April, while 12% expect one in June.."We anticipate a pause through 2023 as higher rates curb economic performance and inflation," says Bryan Yu, chief economist lecturer at Central 1 Credit Union..Is a recession looming? .Recession talk began with the bank’s first rate hike in March 2022 and speculation Canada is ripe for an economic downturn hasn’t lessened in early 2023..A majority of the panel, 78%, are anticipating a recession. One-third say the country is already in a recession, or on the verge of one in Q1 2023, with 6% expecting a recession at the end of the year in Q4 2023. .The most popular response, from 39% of Finder’s panellists, is that a recession will come at some point in the near future but they don’t know exactly when. .“We believe Canada is already in the early stages of a recession led by a deepening correction in housing and a pullback by consumers, particularly highly indebted households,” says Tony Stillo, director of Canada Economics at Oxford Economics..“The downturn will create slack in the economy and help lower inflation back to the Bank's 2% target. After averaging 6.8% in 2022, we expect inflation will fall to 3.8% in 2023 and further to 2.3% in 2024.” .Will unemployment impact rate hikes?.The unemployment rate dropped slightly to 5.3% in December 2022, .8% lower than in December 2021, and well below the pre-pandemic rate..When asked about the unemployment rate’s impact on economic policy 56% expected the BoC to keep raising rates, regardless of the impact..Atif Kubursi, professor emeritus at McMaster University and Econometric Research said, "The bank is now focusing on inflation busting and will pay no real attention to an expected rise in unemployment.".Douglas Porter, chief economist for BMO Financial Group agrees, "inflation is simply far too high, and even a modest back-up in unemployment would leave it below medium-term norms.".“The Bank's focus is on inflation. While I'm sure it hopes for a soft landing, it will not be dissuaded by a rise in unemployment, unless it sees inflation returning to target,” said Angelo Melino, an economics professor at the University of Toronto..Not all experts are convinced the bank should continue rate hikes as unemployment rates rise. .Sebastien Lavoie, chief economist at Laurentian Bank cautions, “there are limits in the job market resiliency. Cracks are emerging in terms of hiring and voluntary quitting. From a communication standpoint, it would be very difficult for the bank to hike rates as unemployment continues to climb.”.What’s the impact on housing?.The average price of a Canadian home sold in December was $626,318,a year-over-year decline of more than 12%, according to the Canadian Real Estates Association (CREA). .When asked what prices will look like in 2023, every member of Finder’s panel believes Canada’s real estate market will remain in a macro downtrend for the entirety of 2023. .Finder’s panel believes:.100% anticipate prices will only decline further by the end of 2023. .77% believe prices will drop, on average, between 10% and 20% by end of the year (from Nov 2022 prices)..45% believe decreases in building permits for new homes puts upward pressure on prices, countering downward pressure from rising interest rates..Asked if there is anything specific the bank should do to improve housing affordability, the most effective action they can take hinges almost entirely on interest rates, according to the panel..Derek Holt from Scotiabank says, “the Bank can stay the course through tightened monetary policy to dampen inflation by reigning in interest-sensitive sectors like housing. If it eases up too quickly, then house prices may rip higher again and damage affordability once more.”.“The Bank of Canada's rapid interest rate hikes have been a key catalyst for the correction in home prices and the recession also now underway,” says Stillo of Canada Economics. “Housing affordability is expected to improve as interest rates begin to ease and the house price correction continues.”.Moshe Lander, a senior economics lecturer at Concordia University believes, “the solution to Canada's "unaffordable" housing situation is looser zoning laws and that is a municipal issue not a provincial or federal issue, and certainly not a bank issue.”.See the entire report https://www.finder.com/ca/bank-of-canada-interest-rate-forecast
