Canada’s financial circles expect central bank to cut rates by year’s end in response to recession

[February 07, 2023](Reported by Epoch Times reporter Zhou Xing in Toronto) A new survey shows that the majority of financial players on Bay Street (Bay Street) believe that,CanadaThe central bank has stopped raising interest rates and will be forced to start cutting them before the end of the year to prevent a mild recession from turning into a severe one.

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CanadaThe central bank released its first quarterly survey of “market participants” on February 6 in order to obtain a benchmark against which the central bank’s economic forecasts can be compared.

The survey found that at the end of 2022, the median forecast of 28 of the 30 financial institutions surveyed was that the central bank’s policy rate will remain unchanged at 4.5% by July 2023, and then gradually lowered to the end of the year. 4%.

Market consensus on economic growth in the fourth quarter of this year could put the central bank on hold on rate hikes. The median estimate of market participants is that gross domestic product will fall by 0.4% in 2023, which is obviously much more pessimistic than the central bank’s forecast that the economy will grow by 1% this year.

Reserve Bank Governor Tiff Macklem last month raised the policy rate by 0.25 percentage point to 4.5 percent and said he was prepared to stop raising rates if inflation continued to retreat from its peak of 8.1 percent in June last year.

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However, Macklem insisted that the pause in rate hikes should not be interpreted as an imminent start to rate cuts, as inflation remains stubbornly high. However, the poll showed a majority of respondents believed economic conditions would force the central bank to cut rates by the end of the summer.

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As for inflation, the median expectation among respondents is that headline inflation will fall to 2.9% by the end of this year before moderating to 2.2% by the end of 2024.

Weakness in the housing market was cited as the biggest economic risk, with nearly 78% of respondents viewing it as the biggest negative factor on the economic outlook. These market participants expect the housing market to return to growth next year, in part because Canadian households still have significant savings.

Responsible Editor: Yue Yi#