The Bank of Canada is likely to lower interest rates a further 75-basis points by year’s end, according to a new poll of economists carried out by the Reuters news agency.
A majority of economists surveyed by Reuters said that they expect Canada’s central bank to cut its trendsetting overnight interest rate by 25-basis points at each of its three remaining meetings this year – in September, October and December.
If the forecast is correct, the Bank of Canada will reduce interest rates by a cumulative 1.25% for all of this year, ahead of most other central banks, including the U.S. Federal Reserve.
Expectations for further rate cuts in Canada come with inflation currently at an annualized rate of 2.5%, its lowest level in 40 months and within the central bank’s 1% to 3% target range.
At the same time, signs are growing that Canada’s economy and labour market are weakening. Canada’s gross domestic product (GDP) slowed to 0.2% in May of this year following a 0.3% advance in April – most recent data available.
The Bank of Canada has already lowered interest rates twice this year for a cumulative reduction of 50-basis points, taking its overnight rate down to 4.50% from a 23-year high of 5%.
In contrast, the U.S. Federal Reserve isn’t expected to announce its first cut to interest rates until September.
The latest Reuters poll found that all 28 economists surveyed expect the Bank of Canada will lower interest rates another 25-basis points to 4.25% at its next policy meeting on Sept. 4.
Additionally, 20 of 28 economists forecast that Canada’s central bank will further reduce rates in October and December, taking the benchmark overnight rate down to 3.75% by year’s end.