The Bank of Canada is likely to decide on another interest rate cut at its third meeting in a row.
The media claim that the mentioned decision by the specified financial regulator is a realistic scenario because Canadian officials are currently seeking to form a system of conditions and circumstances for the implementation of the so-called soft landing of the economic system. Also, in favor of continuing the easing of monetary policy is the fact that nowadays there is a tendency of easing concerns about inflation.
Currently, among analysts interviewed by the media and in the markets, there is an expectation that the Bank of Canada will decide on another interest rate cut on Wednesday, September 4. In their opinion, the benchmark overnight rate will be lowered to 4.25%.
At present, there is no understanding as to whether Bank of Canada officials will make any statements about the strategy for the future activities of the financial regulator in the context of monetary policy. The corresponding issue is becoming more relevant against the background of expectations that the Federal Reserve will begin lowering the cost of borrowing already this month. There is also widespread expectation that the US central bank will implement a series of interest rate cuts. Moreover, some analysts predict that the corresponding strategy of actions will materialize before the end of the current year and continue into 2025.
Economists interviewed by the media predict that the Bank of Canada will cut interest rates by a quarter of a percentage point at each of the next five meetings. If the corresponding expectations are confirmed by reality, the mentioned indicator will be fixed at 3% by the middle of next year. It is also worth noting that the specified figure corresponds to the so-called neutral range of the bank, in which interest rates do not stimulate or slow down the economy.
Claire Fan, an economist with the Royal Bank of Canada, during a conversation with the media, said that the economic system is persistently weakening, and at the present stage, measures should be taken to lower the cost of borrowing. It was also noted in this context that there is currently no need for such a high level of interest rates, which is observed nowadays.
Bank of Canada Governor Tiff Macklem in June became the first head of the central bank from the Group of Seven, who decided to begin implementing a strategy of easing monetary policy. In July, the mentioned financial regulator once again lowered the cost of borrowing. Tiff Macklem insists that cutting interest rates is not a pre-formed action plan. According to him, the relevant decisions are made based on data on the state of affairs in the space of the economic system of Canada. It is worth noting that officials of the European Central Bank have also repeatedly declared a corresponding approach. In addition, there is a kind of consensus among Fed officials that before deciding on easing monetary policy, it is necessary to obtain as much information as possible about the condition of the economy.
At the same time, the Bank of Canada hints that a consistent lowering of the cost of borrowing will become a strategy of real action if a further slowdown in annual price growth is recorded. It is worth noting that inflation in Canada has been in the range of 1% to 3% for seven months now. In July, the corresponding figure was recorded at 2.5%.
The Bank of Canada is currently paying increased attention to downside risks to the economy. In a summary of the July meeting deliberations, officials of this financial institution said that they spent a lot of time discussing the tendency of the weakening labor market in the country.
After it became known that the Fed was determined to begin easing monetary policy, there was a significant reason to ease concerns that Tiff Macklem is moving too quickly ahead of Canada’s largest trading partner, a strategy that risked pressure on the loonie.
Economists interviewed by the media admit the likelihood that the Bank of Canada will expand the scale of lowering the cost of borrowing.
As we have reported earlier, Bank of Canada Governor Sees Little Impact of Country Budget on Fiscal Track.
