TD Bank economist predicts no more rate hikes and rates should start coming down next summer
On Wednesday, the Bank of Canada decided to keep the benchmark rate of interest at five per cent. The BoC has been raising interest rates since March 2022 as a tool to cool down an overcharged post-COVID-19 economy and reduce inflation.
This is good news for most people who have debt. But what does it mean for Canadians in general and British Columbians specifically?
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Postmedia News spoke to TD Bank Senior Economist Leslie Preston for her take.
Why did they hold the rate?
“We’ve seen in Canada a lot of evidence of slowing economic momentum. This interest rate decision was accompanied by a monetary policy report that updates the bank’s economic forecast and they downgraded Canada’s growth both this year and next.
“Typically when you get slower growth and slower demand in the economy it does reduce price pressures and inflation. So the bank is encouraged that the slower momentum will eventually lead to lower inflation, but they are certainly keeping their guard up because inflation has not behaved the way they would like it to.”
Are people feeling the pressure?
“We are seeing it in the spending data as economists. We do have a report out that looks at spending data on cards and we have certainly seen that slow down in recent months as Canadians are squeezed or are anticipating mortgage renewals and already reining in spending, anticipating their mortgage costs are going to rise.”
What about B.C.?
“I believe (overall debt per household) is higher in B.C. Certainly B.C. followed by Ontario has some of the highest house prices in Canada and household debt levels are relatively high.
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“B.C. does get a lot international money coming into its market so not all of that house price shows up in debt. B.C.’s economy has done relatively well and has been a consistent out-performer compared to other provinces. It also has stronger population growth than a lot of other provinces.”
What’s next?
“We think the Bank of Canada is done raising interest rates. We think we will see further slowing in growth and given the risks of inflation remaining high and triggering higher inflation expectations over the higher term we think the BoC will continue to speak about potential rate increases.
“But we do think the Bank of Canada is finished raising rates and eventually as the economy slows and inflation comes down the economy won’t need interest rates to be this high to dampen inflation. We do think they will start cutting rates around the middle of next year.”
What to watch out for?
“Inflation has heated up in recent month due to energy costs. Inflation was at 4 per cent in September compared to a peak of 8.1 per cent in June 2022.
“The next report inflation comes out on Nov. 21 and that will be for October. The next BoC announcement on interest rates will be Dec. 6.”
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