Will interest rates come down in 2024? What the Bank of Canada is watching

Forecasters are expecting rate cuts from the Bank of Canada in 2024, but there are risks to the inflation outlook that could put that timeline in jeopardy.

After the Bank of Canada held its benchmark interest rate steady in its final three decisions of 2023, the tone of conversations in markets has shifted firmly away from further rate hikes and staunchly into the camp of when cuts could begin.

Even Tiff Macklem, the Bank of Canada’s top policymaker, has begun to acknowledge as of late that rate cuts could be in the cards for the new year, despite ongoing warnings that the central bank is prepared to raise rates again if progress taming inflation stalls.

The Bank of Canada’s rapid run-up in the policy rate — it currently sits at 5.0 per cent, up 4.75 percentage points since March 2022 — has put immense pressure on Canadian households, businesses and governments by ratcheting up the cost of borrowing in an effort to tamp down price pressures.

Many Canadians, particularly homeowners who are set to renew their mortgages and are bracing for higher payments in the coming years, are eagerly watching for signs that the tightening cycle could be coming to an end.

Economists who spoke to Global News say they are indeed forecasting a decline in the policy rate for 2024.

But they, like Macklem and his peers, hold the hint of caution in their forecasts. Experts say that inflation’s path back down to the central bank’s two per cent target may well be a bumpy one, which could well delay the timeline for interest rate cuts next year.

In a year-end speech at the Canadian Club in Toronto earlier this month, Macklem hailed the “significant progress” in cooling inflation to-date.

“We’ve come a long way toward restoring price stability,” Macklem said in his speech. “This was our second year of monetary policy tightening, and that work is paying off. The economy is no longer overheated, and that is relieving inflationary pressures.”