Stay with us on this post to delve into the intricacies of BoC Rate Cuts in 2024 and understand their potential impact.
BoC Rate Cuts
As we anticipate a decline in both inflation and the economy in the upcoming year, the Bank of Canada is poised to initiate interest rate reductions. The first round of BoC Rate Cuts in 2024 is expected in Q2 2024. However, caution is advised, with the BoC likely exercising prudence before declaring premature victory over inflation.
Approximately 70% of experts (18 out of 26) project that the rate will conclude 2024 at 4.0% or lower. This is notably lower than the forecasted fed funds rate, expected to be between 4.50 and 4.75 percent. For a comprehensive insight into BoC Rate Cuts in 2024, we recommend a thorough read of this post.
Understanding Current BoC Rates
In its recent announcement, the Bank of Canada maintained its benchmark interest rate at the current level, emphasizing the potential for future rate hikes despite increasing speculation about rate cuts in 2024. For the third consecutive time, the central bank kept its policy rate steady at 5.0 percent in its last announcement for 2023.
Following a peak of 8.1% in June 2022, overall inflation drastically decreased to 3.1% in October. Contrarily, the third quarter witnessed a more pronounced decline in Canada’s GDP than anticipated by most analysts. In an effort to temper demand, discourage spending, and control economic growth, the central bank has raised its policy rate by 4.75 percentage points since March 2022. In December, the BoC announced another pause, accompanied by a dovish statement emphasizing that excess demand in the economy is nearly exhausted, aiming to keep future inflation pressures in check.
Anticipated Bank of Canada Rate Cuts in 2024
The European Central Bank (ECB) and the Bank of England (BOE) are expected to maintain their interest rates until early 2025. In contrast, the Federal Reserve (Fed) and the Bank of Canada (BoC) are poised for a shift towards moderate rate reduction by mid-2024. Mark January 24, 2024, on your calendar for the BoC’s next rate decision.
Aligning with economists’ forecasts, we foresee a decrease in the policy rate starting in mid-2024, with a projected 1.5% decline by the year’s end. If the economy contracts rapidly in the coming months, the rate reduction may accelerate. However, economists now envision a future resting point of a 3% neutral rate.
A survey indicates that the policy rate in early 2025 is expected to remain at 3.5%. Nevertheless, the Bank of Canada’s governing council has issued a cautionary note, suggesting a potential increase if progress in its preferred core inflation measurements is not evident, considering factors such as wage growth, inflation expectations, and consumer price-setting behavior.
Impact of BoC Rate Cuts in 2024
Foreseen adjustments in the Bank of Canada’s policy rate are likely to influence both variable and fixed mortgage rates. Experts predict a trend towards lower mortgage rates in the coming years. With the expected easing of the policy rate, the outlook for 2024 indicates a gradual decline in fixed mortgage rates. While a decline in variable rates might occur in the spring, prospective homeowners are advised to explore fixed-rate options, which are currently more affordable and may remain so throughout 2024.
The Central Bank’s strategy in the upcoming years to manage inflation and sustain consumer demand will be pivotal. Striking a balance in these areas will significantly impact interest rates, affecting both fixed and variable mortgage rates, as well as the broader financial system.
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