Bank of Canada likely to cut rates: Berman
BNN Bloomberg
The Canadian economy is far more sensitive to the higher interest rates of the past few years and likely needs to see rates cut before the U.S. does.
Most U.S. homeowners that have mortgages likely locked in generational-low yields during the early months of COVID. In Canada, those who locked in are now seeing mortgages reset at much higher yields and it’s beginning to pinch the monthly budget. Historically, there is some precedence for the Bank of Canada (BoC) to move rates up and down while the U.S. Federal Open Market Committee (FOMC) does not change rates at nearby meetings. It’s typically when something more unique to Canada impacts the economy more than the U.S.
The last time they cut rates independently of the FOMC was in 2014/2015 when oil prices were collapsing due to the fracking boom in the U.S., which negatively impacted Canada’s trade balances. They were also behind the FOMC in raising rates in 2017. This was largely due to expectations of U.S. tax policy under President Trump, unlocking animal spirits in the U.S. and much less so in Canada.
We can see over the past 25 years that the BoC has generally raised rates less and cut rates less owning to the added sensitivity of what the Canadian dollar does, as well as the importance of oil prices on the Canadian economy relative to the U.S. economy.
