Introduction to Interest Rate Forecast
CIBC Economics has released an updated interest rate forecast, predicting that the Bank of Canada’s policy interest rate will be reduced to 2.50% in September and 2.25% by December. This forecast comes just a week before the central bank’s next rate announcement, scheduled for July 30.
Background on Interest Rate Forecasts
In June, CIBC economists were expecting a 25-basis point cut for the upcoming decision, which would have brought the rate down to 2.50%. However, the latest forecast takes into account recent major data releases from Statistics Canada, including labor market numbers and the Consumer Price Index print. The labor market numbers showed a decline in employment by 83,000, while the unemployment rate fell to 6.9%. The Consumer Price Index print came in at 1.9% year over year, up from 1.7% in May.
Factors Influencing the Forecast
CIBC Economist Ali Jaffery stated that the Bank of Canada is likely to remain on pause in July due to a good job report and firm price pressures. The central bank wants to observe cost pressures, the response of the economy to tariffs, and the uncertainty shock before making any changes to the interest rate. Jaffery also mentioned that waiting until the fall will give the Bank of Canada a clearer picture of Canada’s tariff outcome.
Comparison with Other Economists
CIBC is not alone in anticipating an interest rate hold from the Bank of Canada next week. Economists with TD and BMO are also calling for further easing, with TD predicting a benchmark rate of 2.25% by the third quarter of the year and BMO predicting a rate of 2.25% not until October. On the other hand, economists with Scotiabank and RBC believe that the Bank of Canada won’t be cutting again anytime soon. Scotiabank is calling for a series of holds through 2025, while RBC’s updated forecast has the benchmark interest rate staying at 2.75% until the end of 2026.
Implications of the Forecast
The forecast has significant implications for the economy, particularly in terms of trade and fiscal support. TD Economist Marc Ercolao wrote that the economic backdrop faces downside risk due to uncertainty, which should give the Bank of Canada space to deliver more easing later this year. RBC Economist Claire Fan, on the other hand, believes that the central bank was already approaching the end of its easing cycle and that fiscal support is stepping up to provide timely and targeted support.
Conclusion
In conclusion, the updated interest rate forecast from CIBC Economics predicts that the Bank of Canada’s policy interest rate will be reduced to 2.50% in September and 2.25% by December. The forecast takes into account recent data releases and factors such as labor market numbers, price pressures, and trade uncertainty. While some economists agree with CIBC’s forecast, others believe that the Bank of Canada won’t be cutting again anytime soon. The implications of the forecast are significant, and it will be important to monitor the Bank of Canada’s decisions in the coming months to see how the economy responds.
