Bank of Canada Interest Rate Predictions

In a recent survey conducted by the Bank of Canada, financial market participants predict that the central bank will lower its policy interest rate to 2.75% by June 2025, following a significant 50-basis point cut to the current rate of 3.75%. The survey, which spanned from September 18 to September 27 and involved 30 financial market experts, indicates that the Bank is likely to maintain this reduced rate throughout the remainder of 2025 and into 2026.

Neutral Rate and Economic Uncertainty

The Bank of Canada has previously signaled that its neutral rate—the level at which monetary policy neither stimulates nor restrains economic growth—falls between 2.25% and 3.25%. However, it has opted not to set a specific benchmark. According to the latest survey, the median long-term nominal neutral rate is targeted at 2.75%.

Governor's Insight on Economic Landscape

Bank of Canada Governor Tiff Macklem, speaking at a recent conference in Toronto, acknowledged the uncertainty surrounding the identification of this neutral rate. “We don’t know exactly the pace. We don’t exactly know where the landing is,” he remarked, emphasizing the central bank's ongoing efforts to navigate the evolving economic landscape.

Inflation and Economic Growth Expectations

In addition to rate predictions, the survey also addressed inflation and overall economic growth. Participants expect the consumer price index (CPI) to stabilize at 2.2% by year-end and fall to 2% in 2025. Moreover, projections suggest that the Canadian economy will witness growth of 1.5% in 2024, accelerating to 1.9% in 2025. The Bank of Canada itself has more conservative estimates, anticipating 1.2% growth this year and a bounce-back to 2.1% in 2025.

Concerns Over Recession and Market Fluctuations

While only 20% of respondents foresee a recession looming in the next six months, geopolitical risks and market fluctuations in housing prices have been noted as significant factors that could influence future growth. Analysts are particularly watching these dynamics, as a robust housing market could serve as a major upside risk in this context.

Looking Ahead: New Oversight for Retail Payments

With the Bank of Canada set to implement new oversight of retail payment providers starting Friday, all eyes will be on how these changes and rate adjustments shape Canada's economic trajectory in the coming years. Stay tuned for updates on this developing story!