Bank of Canada Survey Suggests No Further Hikes Expected This Year
According to a survey of market participants released by the central bank on Monday, the Bank of Canada will not raise rates again and will start cutting a little later than previously anticipated.
During the second quarter survey conducted from June 8 to 19, the median expectation of participants, including senior economists and strategists involved in Canadian financial markets, suggests that the Bank of Canada will maintain its interest rates at the current 22-year high of 5.00 per cent until the end of 2023. After that, rate cuts are projected to begin in March.
In contrast, the previous survey in April, when the BoC’s key policy rate was at 4.50 per cent, predicted a rate cut as early as January. Despite this new development, money markets still indicate a possibility of another rate hike before the year ends.
The survey also shows an optimistic outlook for Canada’s gross domestic product (GDP). The median prediction for GDP growth at the end of 2023 is 0.7 per cent, indicating a shift from the previous forecast of a 0.1 per cent contraction.
Earlier this month, the Bank of Canada acknowledged excess demand in the economy and raised its GDP forecast. Additionally, the central bank extended the timeline for inflation to return to its 2 per cent target.
Having already increased rates 10 times since March 2022, the Bank of Canada remains open to the possibility of further rate hikes due to concerns about inflation exceeding its two per cent target.
As for inflation expectations, the survey indicates a forecast of 3.0 per cent annual inflation by the end of this year, up from the previous prediction of 2.7 per cent. However, expectations for the inflation rate to decrease to 2.2 per cent by the end of 2024 remain unchanged.
The Bank of Canada’s own projections suggest inflation will stay around 3 per cent over the next year, with a return to its target by mid-2025, which is six months later than their previous anticipation.
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