Canadian Mortgage Professional (CMP) reports Avery Shenfeld, CIBC’s chief economist, feels the Bank of Canada will reduce the policy rate by 50 basis points at each of its meetings in December and January. The bank’s schedule includes rate announcements on October 23, December 11 and January 29, 2025. “It really is time to declare victory in the battle against inflation and get the economy moving again,” said Shenfeld. “There’s no reason not to speed up the process of getting interest rates down materially,” reports CMP. Going further, CIBC is forecasting the bank to end the easing cycle next June with a policy rate of 2.25%, a pace of cuts that is faster and deeper than what most economists expected, according to a Bloomberg survey from last month. “The forecast change comes amid mounting concerns that Canada’s labour market and growth are weakening at a quicker pace than expected,” says CMP. “Last week, jobs data showed the economy added 22,100 jobs in August, and while there’s no widespread layoffs, the unemployment rate surprisingly jumped to 6.6%.” According to Shenfeld, “the rise in joblessness is concentrated among young Canadians and newcomers, but it’s also spreading to prime-age workers,” he said, adding, “Canada’s unemployment rate could rise to 6.8% or 6.9% in coming months.” Shenfeld does not rule out a ‘jumbo’ cut by the bank on October 23. The bank started its rate reduction cycle in June with a .25% cut, with a similar cut in July and again in September, taking the rate to 4.25% from 5% at the peak of the hiking cycle. The man with his finger on the rate cut trigger, Bank of Canada Governor Tiff Macklem, said last week the bank could cut rates by 50 basis points or more if inflation and the economy slowed faster than expected, countering with the caution that pausing cuts was also on the table in the case of stronger growth or persistent inflation. CIBC isn’t the only big bank suggesting big cuts, with National Bank of Canada anticipating a 50-basis point cut before the end of 2024, forecasting the Bank of Canada’s policy rate will reach 3.5% this year and eventually 2.75% by the end of the easing cycle next year. That is “the estimated midpoint of the so-called neutral rate, where borrowing costs neither stimulate nor restrict economic growth,” says CMP, adding on Thursday, former Bank of Canada Governor Stephen Poloz said there may be a case for cutting rates beyond that midpoint “if the downside risks do build up more” to cushion the economy. CIBC’s and National Bank’s projections align with Citibank’s Veronica Clark, one of the first forecasters to call for a 50-basis point cut this cycle, and expects one at the next meeting in October, says CMP. Meanwhile four big banks, Bank of Montreal, Toronto Dominion Bank, Royal Bank of Canada and the Bank of Nova Scotia expect Macklem to ease borrowing costs in 25 basis-point increments, reports CMP. Regardless, Shenfeld maintains his prediction. “Rates are now too high for the economy’s own good and they can afford to front load some of their reductions,” he said, adding officials may want to stimulate the country’s stagnating housing market. Expectations were Canadians would return to home buying in large numbers, based on the two bank rate cuts in June and July, but sales in the country’s major markets did not meet those expectations in August. “Canada’s economy grew at 2.1% annualized pace in the second quarter, but that was driven by government spending and business investment,” reports CMP. “Consumption is weak, and propped up by elevated population growth. Earlier output indicators suggest the country’s growth will slow markedly in the second half of 2024."
Canadian Mortgage Professional (CMP) reports Avery Shenfeld, CIBC’s chief economist, feels the Bank of Canada will reduce the policy rate by 50 basis points at each of its meetings in December and January. The bank’s schedule includes rate announcements on October 23, December 11 and January 29, 2025. “It really is time to declare victory in the battle against inflation and get the economy moving again,” said Shenfeld. “There’s no reason not to speed up the process of getting interest rates down materially,” reports CMP. Going further, CIBC is forecasting the bank to end the easing cycle next June with a policy rate of 2.25%, a pace of cuts that is faster and deeper than what most economists expected, according to a Bloomberg survey from last month. “The forecast change comes amid mounting concerns that Canada’s labour market and growth are weakening at a quicker pace than expected,” says CMP. “Last week, jobs data showed the economy added 22,100 jobs in August, and while there’s no widespread layoffs, the unemployment rate surprisingly jumped to 6.6%.” According to Shenfeld, “the rise in joblessness is concentrated among young Canadians and newcomers, but it’s also spreading to prime-age workers,” he said, adding, “Canada’s unemployment rate could rise to 6.8% or 6.9% in coming months.” Shenfeld does not rule out a ‘jumbo’ cut by the bank on October 23. The bank started its rate reduction cycle in June with a .25% cut, with a similar cut in July and again in September, taking the rate to 4.25% from 5% at the peak of the hiking cycle. The man with his finger on the rate cut trigger, Bank of Canada Governor Tiff Macklem, said last week the bank could cut rates by 50 basis points or more if inflation and the economy slowed faster than expected, countering with the caution that pausing cuts was also on the table in the case of stronger growth or persistent inflation. CIBC isn’t the only big bank suggesting big cuts, with National Bank of Canada anticipating a 50-basis point cut before the end of 2024, forecasting the Bank of Canada’s policy rate will reach 3.5% this year and eventually 2.75% by the end of the easing cycle next year. That is “the estimated midpoint of the so-called neutral rate, where borrowing costs neither stimulate nor restrict economic growth,” says CMP, adding on Thursday, former Bank of Canada Governor Stephen Poloz said there may be a case for cutting rates beyond that midpoint “if the downside risks do build up more” to cushion the economy. CIBC’s and National Bank’s projections align with Citibank’s Veronica Clark, one of the first forecasters to call for a 50-basis point cut this cycle, and expects one at the next meeting in October, says CMP. Meanwhile four big banks, Bank of Montreal, Toronto Dominion Bank, Royal Bank of Canada and the Bank of Nova Scotia expect Macklem to ease borrowing costs in 25 basis-point increments, reports CMP. Regardless, Shenfeld maintains his prediction. “Rates are now too high for the economy’s own good and they can afford to front load some of their reductions,” he said, adding officials may want to stimulate the country’s stagnating housing market. Expectations were Canadians would return to home buying in large numbers, based on the two bank rate cuts in June and July, but sales in the country’s major markets did not meet those expectations in August. “Canada’s economy grew at 2.1% annualized pace in the second quarter, but that was driven by government spending and business investment,” reports CMP. “Consumption is weak, and propped up by elevated population growth. Earlier output indicators suggest the country’s growth will slow markedly in the second half of 2024."
