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Canada On Track For June Interest Rate Cut

Canada Monthly Market Commentary

March 27, 2024 2 Minute Read

Interest rates continued to hold steady across most major economies but central banks are getting closer to their first expected rate cuts within a few months. Several countries are currently in or nearing recessions, including the United Kingdom, Germany and Japan, while inflation has generally continued on its downward trend. In Canada, economic growth stalled in December and inflation contracted for the second consecutive month to 2.8% in February. However, the Bank of Canada is evidently still a bit cautious, wary of stoking a housing market rebound while also expanding its view of inflation to encompass a wider array of indicators.

Barring any surprises, economists largely expect the Bank of Canada to make its first interest rate cut in June. In fact, financial markets have currently priced in 70% odds for a June cut and 20% probability for an earlier decrease in April. This would potentially put the Bank of Canada on track to cut interest rates ahead of the Federal Reserve given the stronger economy and higher levels of inflation in the U.S. As well, due to higher sensitivities to interest rates in Canada, the central bank is also expected to move more aggressively than its U.S. counterpart in 2024. The current median economist forecast expects interest rates in Canada to fall 100 bps to 4.00% by the end of the year. Meanwhile, the Federal Reserve is projecting three cuts for a total decrease of 75 bps to a range of 4.50-4.75%.

These highly anticipated interest rate cuts signal an economy returning to a more accommodative financing environment that is expected to boost corporate profits and economic growth. However, for the commercial real estate market, the interest rate cuts will be most impactful for floating rate debt as the Canada 10-year bond yield had already stabilized around 3.50% in recent months. Lenders have been active in the market but remain highly selective of the opportunities they pursue.

Economic Highlights:

  • Headline inflation slowed to 2.8% in February 2024, with core measures CPI-Trim and CPI-Median also easing to 3.2% and 3.1%, respectively.
  • Employment rose by 40,700 jobs in February 2024 and the unemployment rate edges up slightly to 5.8%.
  • Retail sales fell 0.3% in January 2024 with advanced estimates for a 0.1% gain in February.


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