Bank of Canada Survey Indicates Potential Interest Rate Cut

According to a recent survey conducted by the Bank of Canada, financial market participants are indicating the possibility of an interest rate cut in April. The survey, which polled about 30 participants, sought insights into the economic scenario and monetary policy.

Among the respondents, the median of 28 indicated that the first rate cut would likely happen in April, with a quarter-point reduction bringing the policy rate down to 4.75%. Looking ahead to December 2024, a median of 27 responses projected the Bank of Canada's policy rate to stabilize at 4%.

Last month, the Bank of Canada maintained its benchmark rate at 5%, citing slowing consumption due to tighter financial conditions and increasing spare capacity in the economy. The survey revealed that two-thirds of participants believed there was slack or a positive output gap in the economy.

A separate survey conducted by The Wall Street Journal among economists found that nine out of 14 analysts predicted rate cuts during the first half of 2024.

Bank of Canada Governor Tiff Macklem cautioned that if inflation fails to slow as expected, the central bank may need to consider raising rates again. The central bank's forecast indicates an anticipated inflation rate of 3.5% by mid-2024 and 2% by the end of 2025. The Bank of Canada sets interest rates with the goal of achieving and maintaining 2% inflation.

Regarding inflation expectations, nearly two-thirds of respondents in the survey believed that inflation would reach 3% or higher by the end of this year. Looking further ahead to 2024, 64% predicted that inflation would settle within the 1% to 3% range.

When asked about the probability of a recession, the median of 26 responses indicated a roughly 50% chance of a downturn occurring within the next six to 12 months.