The Bank of Canada should start thinking about cutting rates sooner rather than later: Portfolio manager
Following the Bank of Canada’s decision to hold interest rates steady, experts were divided over the central bank’s path forward on rate policy.
On Wednesday, the Bank of Canada announced it would keep its benchmark rate at five per cent in its continued bid to bring inflation down to two per cent, with a policy move that was in line with most economists’ expectations.
Experts who spoke with BNN Bloomberg on Wednesday held different views on whether Canadians can expect further hikes before the end of 2023.
WHAT DID THE BANK OF CANADA SAY?
In a written statement on its decision, the Bank of Canada highlighted signs of economic weakening seen in recent months – which is needed to bring down inflation – while also warning that it is “prepared to increase the policy interest rate further if needed.”
“In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the two per cent inflation target,” the statement reads. “The Bank remains resolute in its commitment to restoring price stability for Canadians.”
HOLD OR FUTURE HIKES?
With the next rate announcement slated for Oct. 25, Earl Davis, head of fixed income and money markets at BMO Global Asset Management, said he believes Canadians can expect further hikes in the near future.
“We didn’t anticipate a hike today, there’s two more meetings before the end of the year, we anticipate they’re going to hike it one of them, at a minimum,” he told BNN Bloomberg in a television interview.
Meanwhile, Ed Devlin, founder of Devlin Capital and former head of Canadian portfolio management at PIMCO, was not so convinced that further hikes are on the horizon, though he didn’t rule out the possibility.
“I think we’re probably done, but I think people who have too much conviction around that – any view quite frankly – are maybe being a little bit foolish because there’s so much uncertainty out there,” he said.
“We’re not out of the woods yet, so I think probably, but I wouldn’t bet the farm.”
Tu Nguyen, an economist with RSM Canada, also said she expects the Bank of Canada’s hold will extend further.
“The Bank of Canada is likely done with the hiking cycle, rendering a rate peak of five per cent,” she said in a written statement. “Monetary policies designed to cool the previously overheated economy are working, but the Bank does not want to over-tighten. Further rate hikes risks pushing the economy into a recession and result in more job losses than necessary.”
Nguyen said she believes the hold will extend into 2024 and does not expect rate cuts for quite some time, arguing that a premature rate cut could “risk reaccelerate inflation again.”
The Bank of Canada is scheduled to make two more interest rate decisions this year on Oct. 25 and Dec. 6.