Bank of Canada signals it's not cutting rates anytime soon: CIBC's Benjamin Tal
The Bank of Canada is signalling that it won’t be cutting interest rates in the near future, despite some economists and investors betting that it will, according to CIBC Capital Markets Deputy Chief Economist Benjamin Tal.
“I think what the Bank of Canada is telling us is that in order for us to cut interest rates, it has to be very, very bad – something really bad has to happen,” Tal told BNN Bloomberg in an interview. “So the bar for cutting rates is now much more difficult than it was [before Wednesday’s decision].”
The Bank of Canada, as widely expected, held its benchmark interest rate steady at 1.75 per cent Wednesday, but struck an optimistic tone as it pointed to “accumulating evidence” of an economic recovery. The bank cited a more stable national housing market, stronger consumer spending, employment gains, and recovery in the oil sector as factors that have reinforced its view that the recent slowdown was temporary.
Tal said the purpose of highlighting those positive indicators is to tell the market the central bank is not cutting anytime soon.
“All of this positive news is not about raising interest rates, it’s about not cutting interest rates,” he said. “[Poloz] is very clear: I’m not cutting – read his lips – that’s exactly what he’s telling you.”
Some economists, however, still believe the central bank will lower rates this year.
In a note to clients Wednesday, Stephen Brown, senior Canada economist at Capital Economics, predicted the Bank of Canada will cut three times over the next 12 months, bringing its key rate down to one per cent.
Brown said policymakers may be underestimating the extent to which the housing downturn will weigh on economic growth and that the labour market’s strong run will come to an end.
“Given our below-consensus GDP forecasts, we think investors are underestimating the likelihood of the bank cutting interest rates this year,” he wrote.
The next interest rate decision is scheduled for July 10 when the central bank will also release a detailed monetary policy report.