Rate cuts could come by June 2024 — but government spending will play a role: CIBC
Global News
The Bank of Canada's job is being made harder by government spending plans and could keep interest rates higher for longer, according to a new report from CIBC.
Reining in government spending could take some of the pressure off the Bank of Canada in tamping down inflation and help limit pain for debt-ridden Canadians, according to a new report from CIBC.
The central bank’s return to rate hikes last week with a 25-basis-point increase has economic forecasters hurriedly revising their outlooks for inflation and interest rates, with CIBC also turning its lens on the role played by fiscal policymakers.
In the report released Monday from chief economist Avery Shenfeld and senior economist Andrew Grantham, CIBC forecasts back-to-back rate hikes of a quarter percentage point each in the Bank of Canada’s next two interest rate decisions in July and September, which would bring the policy rate to 5.0 per cent.
Rate cuts, meanwhile, aren’t expected to come until June 2024, according to CIBC forecasts. The central bank policy rate is projected to fall to 3.5 per cent by the end of next year, CIBC predicts.
Rates are going to have to stay higher for longer in the status quo, the CIBC economists argue, unless there’s a shift in approach from federal and provincial governments to help the Bank of Canada with its goal of getting inflation back to its two per cent goal.
While the Bank of Canada’s primary tool to achieve its inflation mandate is to set the cost of borrowing using its benchmark rate, governments can have an impact on that progress by slowing or ramping up demand based on their spending and policy objectives.
Fiscal stimulus that puts more money in the pockets of Canadians, for example, can fuel demand and inflation, in turn.
Federal Finance Minister Chrystia Freeland often noted in presenting the Liberals’ 2023 budget that she would exercise “fiscal responsibility” in charting the country through a period of cooling-but-still-high inflation and economic uncertainty on the horizon.
