By Paul Vieira
OTTAWA–The Bank of Canada may start cutting interest rates in April on the expectation that inflation will hover between 1% and 3% by the end of 2024, according to a survey of financial market participants.
The Bank of Canada released on Monday the quarterly results of responses from about 30 financial-market participants to questions regarding the economic scenario and monetary policy.
Those surveyed were asked for their Bank of Canada policy-rate forecast. The median of 28 responses indicated the first cut comes in April, at a quarter-point to 4.75%. By December of 2024, a median of 27 responses had the Bank of Canada’s policy rate sitting at 4%.
The Bank of Canada left its benchmark unchanged last month at 5%, arguing consumption was slowing due to tighter financial conditions, and that spare capacity was building up in the economy. Two-thirds of survey respondents said they believed there was slack, or a positive output gap, in the economy.
A survey of economists last month by The Wall Street Journal found that nine of 14 analysts forecast rate cuts starting in the first half of 2024.
Bank of Canada Governor Tiff Macklem told lawmakers that the central bank might have to raise rates again should inflation fail to slow as forecast. The central bank anticipates inflation hitting 3.5% by mid-2024, and 2% by the end of 2025. The central bank sets interest rates to achieve and maintain 2% inflation.
According to the survey, nearly two-thirds of survey respondents said that inflation would be 3% or higher by the end of this year. By the end of 2024, 64% said they forecast inflation to settle in the 1% to 3% range.
Asked about the probability of a recession, the median of 26 responses indicated a roughly 50% chance of a downturn of two consecutive quarters in the next six to 12 months.
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