Bank of Canada to cut interest rates in half by end of next year: Desjardins
First cut could come in April if inflation and economy slows further
Canadians can expect the Bank of Canada to start providing some respite this spring as the central bank “slowly but surely” moves towards its first interest rate cuts, says Desjardins Group.
tap here to see other videos from our team.
Bank of Canada to cut interest rates in half by end of next year: Desjardins Back to video
tap here to see other videos from our team.
Chief economist Jimmy Jean says Desjardins is forecasting the first rate cut in June, but it could “easily” arrive as soon as April if inflation and the economy slow more than expected.
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.
- Daily puzzles, including the New York Times Crossword.
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.
- Daily puzzles, including the New York Times Crossword.
Create an account or sign in to continue with your reading experience.
- Access articles from across Canada with one account.
- Share your thoughts and join the conversation in the comments.
- Enjoy additional articles per month.
- Get email updates from your favourite authors.
Sign In or Create an Account
“We are seeing the damage caused by that very aggressive monetary policy,” Jean said in an interview with the Financial Post’s Larysa Harapyn. “It’s time to cut rates.”
After the first cut, Desjardins expects the central bank will reduce rates by 25 basis points at every meeting this year and into 2025. By the end of next year, it predicts interest rates will be roughly half of what they are now.
That reduction would put the Bank of Canada’s key overnight rate — currently at five per cent — at 2.5 per cent by the end of 2025, according to Desjardins’ forecast.
The Bank of Canada doesn’t have the same margin of error as the United States Federal Reserve to keep rates higher for longer because “our economy is much more sensitive to interest rates,” said Jean.
The U.S. economy had “a spectacular (year) by all stretches of imagination” in 2023, he said. “All the numbers have defied expectations. Even the Fed has been surprised by the strength.”
Canada’s economy, on the other hand, has already fallen into recession when viewed on a per-capita basis, said Jean.
The economist expects wages will start to come down this year, providing the “Bank of Canada with further confidence that it’s time to cut rates.”
Lower borrowing costs should help the economy escape a “significant” recession, but 2025 will still be challenging because of mortgage renewals.
The average Canadian will see their payments rise by about 34 per cent when their mortgage is renewed, he said. For variable rate mortgage-holders, the increase could be 54 per cent.
“That’s very significant,” Jean said. “The consumer is clearly under pressure here.”
• Email: novid@postmedia.com
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters financialpost.com.
