EXPERTS PREDICT BANK OF CANADA TO HOLD INTEREST RATES STEADY AS THE ECONOMY HITS A ROADBLOCK

According to a recent article published by Steve Scherer at reuters.com, the Bank of Canada (BoC) is expected to maintain its current interest rates on Wednesday, in light of the slowing economy. However, it is possible that the central bank may indicate the potential for future rate hikes, considering the inflation rate remains above its 2% target.

In July, the Bank of Canada increased interest rates to their highest level in 22 years at 5.0%, and indicated that further hikes might be necessary. However, it chose to hold rates steady in September, as it appeared that economic growth was slowing down. Recent data has confirmed this trend, with growth essentially stagnating during the months of July and August.

The current state of the Canadian economy suggests that there may be a prolonged period of slower growth and a modest decrease in inflation. As a result, it is expected that the Bank of Canada will maintain its current course of action. Over the past year and a half, the BoC has raised its key overnight rate 10 times to combat inflation, which reached a high of over 8%. However, inflation unexpectedly slowed to 3.8% in September, down from 4.0% in August.

The Bank of Canada is expected to make a policy announcement on Wednesday at 10 a.m. ET and release its updated forecasts for growth and inflation. According to recent data, Canadian retail sales experienced a minor decline of 0.1% in August compared to July and are projected to remain stable in September.

Last month, the Bank of Canada (BoC) predicted that prices of goods and services would remain high and the economy would slow down until mid-2025. However, the BoC Governor, Tiff Macklem, stated recently that the economy would not experience a severe recession.

The policymakers at BoC do not want to see the market predict interest rate cuts by early 2024. To prevent this, the Bank of Canada will need to sound positive and confident enough in their approach to keep the current market pricing unchanged.

Most economists believe that the Bank of Canada will not raise interest rates for the next six months and will likely reduce them in the second quarter of 2024. The chances of a hike in interest rates were reduced significantly after last week’s inflation data, which caused the money markets to reduce the likelihood of a hike from 43% to 13%.