Canadian Markets Could See Interest Rate Cuts Soon

While the Bank of Canada is not cutting any policy interest rates right now, they could fall by April.

The Federal Reserve and the Bank of Canada have both decided to hold off on reducing interest rates, keeping them stable at 5.25-5.5% and 5.00% respectively. How long those policy interest rates will need to remain fixed will be determined by a number of economic factors. Currently, Canada’s central banks are trying to figure out how long the rates may need to stay at their current level.

The focus is to bring interest rates down as inflation decreases, but with much of the world coming out of a global recession, that may not happen very soon. The Bank of Canada is expecting the economy to not be in a state of excess demand for the following year, the primary factor they’re looking at is inflation. A statement from the central bank said that the specific factor they are looking at is several months in a row of core inflation decrease. It would be at that point they can even begin talks about cutting the interest rate.

In November, Canada’s inflation rate was 3.1%, which was much higher than what the Bank of Canada was aiming for at 2%.

Several economic forecasts have already been released for Bank of Canada interest rates,  with some predicting by the second quarter of 2024 that the rates will have fallen to 3.75%.

What to Know about the Canadian Economy

The Canadian unemployment rate increased to 5.8% while more jobs were added- an additional 25,000. Canada’s non-permanent resident numbers increased as population grew as well for 2023. That puts greater strain on the government and economic resources.

Headline inflation did not change, despite the poor showing. It simply held flat at 1.3% for November of last year.

The Canadian dollar (CAD) is down 0.74% against the US dollar (USD) for the week. It is down only 0.07% to the Euro (EUR) but gained 0.47% against the British pound in the same timeframe. CAD also gained against the Japanese yen (JPY) 0.05%.

Economists are slightly optimistic on Canada’s economy, but there are no compelling factors to point to for signs of strong upcoming growth.