Boc To Cut Rates Bofa

Boc To Cut Rates Bofa by Andrew Blumer last updated on September 06, 2024

Bank Of Canada (Boc) To Cut Rates In September

Bank of America's Global Research has made a forecast that the BoC will cut the rates at the 4th September meeting. BofA added that a 25 bps rate cut will lower the policy rate to 4.25% in Canada.

The reason behind this forecast of rate cut is an increase in unemployment, economic weakness, and consistent disinflation trend.

Interest Rate To Move Lower To 3.75%

This forecast makes sense as inflation has already come down, which is the real reason behind the higher rates. Also, a lot of economic indicators have gone down, which shows that the economy is really struggling with higher rates.

By the end of 2024, the interest rate in Canada will come down to 3.75%. Similarly, the rate will eventually come down to 3.0% by the 2025 end.

There's no doubt that Canada's economy has become frail, and it was confirmed by the slow GDP growth of 0.2% m/m during May. Additionally, Canadian retail sales decreased by 0.3% in June, while core retail sales jumped by 0.4%.

BofA Global Research believes that Canada's Q2 GDP growth will be around 2.0% annually (seasonally adjusted). If this turns out to be true, it will be a sign that the economy has gone sluggish.

similar story is seen in Canada's labour market as the number of employed people continues for the 2nd month in a row. In fact, the wage growth in Canada has also started to come down.

Meanwhile, the unemployment rate in Canada has moved higher to 6.4%, which means that consumer spending has also gone down.

The only indicator that's good is inflation, as the headline inflation in July declined by 2.5% y/y from an earlier reading of 2.7%. The inflation of services has also gone down due to shelter costs.

All of this points to the possibility that the Bank of Canada will cut the rates in order to support the economy and spur growth.