Economists anticipate that the Bank of Canada will keep interest rates steady in its upcoming announcement this week, with some suggesting that the era of rate hikes may be over.
According to a Bloomberg survey, economists are leaning towards maintaining the interest rate at five per cent, in line with recent trends. This decision follows the Bank of Canada's choice to keep rates unchanged in October and September.
James Orlando from TD Economics remarked that given the recent GDP data showing a 1.1 per cent decline in the third quarter, there's little incentive for further rate hikes. Orlando expects economic growth to remain below par in the near term, gradually nudging inflation closer to the two per cent target. He predicts that rate cuts might become a possibility starting in April 2024.
Douglas Porter, chief economist at the Bank of Montreal, also weighed in, noting that while the third-quarter GDP figures were disappointing, revisions to the second quarter's data and a decent start to the fourth quarter leave the overall economic picture somewhat balanced. He suggests that while the Bank of Canada might not raise rates further, it also might not rush into rate cuts just yet.
Andrew Grantham from CIBC Capital Markets echoed similar sentiments, suggesting that despite the disappointing third-quarter GDP figures, they won't significantly alter the Bank of Canada's outlook.
Tu Nguyen from RSM Canada indicated that the contraction in the third quarter's GDP could prompt discussions about potential rate cuts. Nguyen suggests that to prevent a deeper recession, the Bank of Canada might consider implementing its first rate cut in April 2024.
Shifting focus to unemployment, Statistics Canada reported a rise in the unemployment rate to 5.8 per cent in the previous month, attributed in part to higher interest rates affecting job creation. Nguyen believes that the weak GDP figures coupled with the November job report might prompt a shift towards rate cuts, provided inflation remains under control.
Nguyen predicts that unemployment could rise further to around six per cent by early 2024, with slow hiring anticipated until mid-2024 due to businesses delaying investments amidst a challenging economic environment.