Analysts see little prospect of imminent interest rate cuts

Rates are likely to remain elevated for a prolonged period, observers warn

Analysts see little prospect of imminent interest rate cuts

Canada’s housing market will likely continue labouring under elevated borrowing costs despite the central bank’s latest decision to keep the benchmark interest rate frozen at 5%, according to analysts.

Randall Bartlett, senior director of Canadian Economics at Desjardins, said that the possibility of the BoC policy rate returning to pandemic-era or pre-pandemic levels is nil.

“We think the Bank of Canada will keep interest rates higher for a longer period of time,” he said in an interview with BNN Bloomberg.

At the same time, Bartlett believes that Canadian GDP and core inflation figures will be trending downward from this point on.

“We think the Bank has done enough and will continue to see a slowing in the economy going forward, which will help to support a gradual return of underlying inflation to the BoC’s 2% target by the end of next year,” he said.

Bartlett is projecting interest rates to begin going down as early as Q1 2024, on the heels of a “short and shallow” recession at the end of 2023 and early 2024.

Labour market has bottomed out

Francis Fong, managing director at TD Economics, said that the Canadian economy has reached what he described as an “inflection point” of slower job growth rates.

Coupled with the fact that inflation has drawn even nearer to the BoC’s 2% target, Fong said that interest rates no longer need to rise further.

At the same time, “related to the housing market, it’s likely that we won't start to see the turn in interest rates… for at least a little bit more time, another six to nine months is likely for those rate cuts to start coming in,” Fong told BNN Bloomberg.

“[This] means the housing market is going to be having to deal with this current high level of interest rates for a few more months yet.”