Bank of Canada will likely make no its last rate increase of 25 basis points

Bank of Canada will likely make no its last rate increase of 25 basis points: Reuters survey on July-12

(Reuters:) BENGALURU, July 6 – According to the majority of economists surveyed by Reuters, the Bank of Canada will increase interest rates by a quarter point for a second consecutive meeting on July 12 to 5.00% after a five-month break earlier this year and retain those levels through at least 2024.

Even though that is now the anticipated peak rate, the same group of economists had predicted a peak of 4.50% prior to the BoC’s unexpected action in June, highlighting how stubbornly price pressures have persisted in an economy that is still doing well.

Although it decreased significantly from 4.4% in April to 3.4% in May, inflation remains substantially beyond the central bank’s 2.0% objective and is not anticipated to reach that level until early 2025.

Therefore, the BoC will continue and raise the overnight rate.

Economists appear more convinced of another rate rise than financial markets, which are pricing in a roughly 55% chance of a quarter-point hike this month.

“The slowdown (in inflation) may not be enough to remove another BoC rate hike from the table this month given stickier core rates of inflation, while a decent GDP report coupled with a tight job market suggests the economy remains sturdy,” said Priscilla Thiagamoorthy, senior economist at BMO Capital Markets.

This year, the annualised growth rate of the gross domestic product was predicted to be 1.3%, up from 0.7% in an April survey.

According to the consensus prediction, the unemployment rate will be 5.4% on average in 2023, barely increasing from the current 5.2%.

The survey predicts that the 2% objective set by the central bank won’t be reached by inflation until at least 2025.

Core inflation, which excludes volatile food and energy prices, was predicted by economists to only marginally decrease by year’s end.

It is undeniably true that data have shown stronger and longer-lasting momentum in consumer spending and labour demand than we had previously anticipated, according to RBC Economics economist Claire Fan.

The question is when we will be able to see a significant slowdown in both the labour market and the prospects for the economy. But in our minds, the question is more about when than whether it will happen.

It is undeniably true that data have shown stronger and longer-lasting momentum in consumer spending and labour demand than we had previously anticipated, according to RBC Economics economist Claire Fan.

The question is when we will be able to see a significant slowdown in both the labour market and the prospects for the economy. But in our minds, the question is more about when than whether it will happen.

According to the poll, there was a 50/50 chance of a recession occurring in the upcoming year, with a median 60% chance for one to arise in the following two years.
Most economists projected that the central bank will leave rates steady at 5.00% until Q2 2024.
Rates remaining high for longer is anticipated to strengthen the Canadian dollar, one of the top G10 performers this year.

According to a separate Reuters survey, the loonie is anticipated to strengthen 2.3% against the US dollar to 1.30 during the next year.

The peak level of U.S.-Canadian relative rates is now probably in the rear-view mirror for the rest of the current economic cycle, and that should support the CAD from now on,” noted Kit Juckes, head of FX strategy at Societe Generale.

Reporting by Milounee Purohit, Polling by Vijayalakshmi Srinivasan; Editing by Ross Finley and Andrea Ricci

Source : Reuters